TAX LAWS AMENDMENT (2011 MEASURES NO. 9) BILL 2011 Explanatory Memorandum
TAX LAWS AMENDMENT (2011 MEASURES NO. 9) BILL 2011
2010-2011
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
TAX LAWS AMENDMENT (2011 MEASURES No. 9) BILL 2011
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)
Table of contents
Glossary .................................................................................................. 1
General outline and financial impact ....................................................... 3
Chapter 1 Electronic portability form .............................................. 9
Chapter 2 CGT and business restructures -- Part 1:
Share or interest sale facilities for foreign
interest holders in a restructure .................................. 17
Chapter 3 CGT and business restructures -- Part 2: CGT
demerger relief ............................................................ 25
Chapter 4 CGT business restructures -- Part 3: Roll-overs
for change of incorporation ......................................... 31
Chapter 5 GST financial supply provisions ................................... 53
Chapter 6 GST treatment of new residential premises ................. 65
Chapter 7 Deductible gift recipients .............................................. 77
Chapter 8 Miscellaneous amendments to the tax laws ................ 79
Index ................................................................................................... 117
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
Abbreviation Definition
ACT Australian Capital Territory
ADI's authorised deposit-taking institutions
ATO Australian Taxation Office
APRA Australian Prudential Regulation Authority
CGT capital gains tax
Commissioner Commissioner of Taxation
Corporations Act Corporations Act 2001
DGRs deductible gift recipients
GST goods and services tax
GST Act A New Tax System (Goods and Services Tax)
Act 1999
ITAA 1997 Income Tax Assessment Act 1997
ITAA 1936 Income Tax Assessment Act 1936
RSA Act Retirement Savings Accounts Act 1997
share sale facility share or interest sale facility
SIS Act Superannuation Industry (Supervision)
Act 1993
TAA 1953 Taxation Administration Act 1953
TFN tax file number
TIES Tax Issues Entry System
1
General outline and financial impact
Electronic portability form
Schedule 1 to this Bill amends the Retirement Savings Accounts Act 1997
and the Superannuation Industry (Supervision) Act 1993 to enable certain
superannuation fund members to electronically request the consolidation
of their superannuation benefits through the Australian Taxation Office.
Date of effect: These amendments commence from the day after Royal
Assent.
Proposal announced: This measure was announced in the Assistant
Treasurer and Minister for Financial Services and Superannuation's
Media Release No. 134 of 23 September 2011.
Financial impact: Nil.
Compliance cost impact: Low to nil.
CGT and business restructures -- Part 1: Share or interest
sale facilities for foreign interest holders in a restructure
Part 1 of Schedule 2 to this Bill amends the Income Tax Assessment
Act 1997 to ensure entities in a restructure can use a share or interest sale
facility to deal with foreign held interests without Australian tax residents
automatically failing a key requirement of certain capital gains tax (CGT)
roll-overs.
Date of effect: This measure applies to CGT events happening after
7.30 pm (by legal time in the Australian Capital Territory) on
11 May 2010.
The amendments are either beneficial to taxpayers or do not disadvantage
them. For more details see paragraphs 2.31 to 2.33 in this explanatory
memorandum.
Proposal announced: This measure was announced in the then Assistant
Treasurer's Media Release No. 090 of 11 May 2010 and in the
2010-11 Budget.
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
Financial impact: This measure is expected to have an unquantifiable,
but expected to be negligible, revenue impact.
Compliance cost impact: Low. This is comprised of a low
implementation impact and no change in ongoing compliance costs
relative to the affected group.
CGT and business restructures -- Part 2: CGT demerger
relief
Part 2 of Schedule 2 to this Bill excludes an entity from being a member
of a demerger group if the entity is a corporation sole or a complying
superannuation entity.
Date of effect: The amendments in Part 2 apply to capital gains tax events
happening after 7.30 pm (by legal time in the Australian Capital Territory)
on 11 May 2010.
This date of effect ensures that any transactions occurring from the time of
announcement are covered by the amendments so that taxpayers can
benefit from the measure. These amendments are beneficial to taxpayers.
Proposal announced: This measure was announced in the then Assistant
Treasurer's Media Release No. 090 of 11 May 2010 and in the
2010-11 Budget.
Financial impact: This measure is expected to have an unquantifiable but
negligible revenue cost.
Compliance cost impact: Low. This is comprised of a low
implementation impact and no change in ongoing compliance costs
relative to the affected group.
CGT and business restructures -- Part 3: Roll-overs for
change of incorporation
Part 3 of Schedule 2 to this Bill amends the Income Tax Assessment
Act 1997 (ITAA 1997) to expand the existing capital gains tax (CGT)
roll-over for the change of a body to an incorporated company. The
expanded roll-over applies to entities that change incorporation to become
a Corporations (Aboriginal and Torres Strait Islander) Act 2006
corporation. The expanded roll-over also covers a taxpayer's rights
associated with a body, as well as their ownership interests, and situations
4
General outline and financial impact
where a body is wound up and replaced by a new company incorporated
under a different law.
Part 3 also amends the ITAA 1997 to allow for tax neutral consequences
for CGT, depreciating, revenue and trading stock assets of a body that is
wound up and replaced by a new company incorporated under a different
law, and these assets are transferred to the new company.
Date of effect: The expansions to the CGT roll-over for interests in a
body that changes incorporation applies to CGT events happening after
7.30 pm (by legal time in the Australian Capital Territory) on
11 May 2010.
The roll-over for the CGT, depreciating, revenue and trading stock assets
of a body that changes its incorporation by winding up and transferring its
assets to a new company applies in relation to the cessation of existence of
bodies corporate occurring after 7.30 pm (by legal time in the Australian
Capital Territory) on 11 May 2010.
The dates of effect of these roll-overs are retrospective so that any
transactions occurring since the time of announcement are covered by the
amendments so that taxpayers can benefit from the measure.
Proposal announced: This measure was announced in the then Assistant
Treasurer's Media Release No. 090 of 11 May 2010 and in the
2010-11 Budget.
Financial impact: This measure is expected to have an unquantifiable but
negligible revenue cost.
Compliance cost impact: Low. This is comprised of a low
implementation impact and no change in ongoing compliance costs
relative to the affected group.
GST financial supply provisions
Schedule 3 to this Bill amends the A New Tax System (Goods and Services
Tax) Act 1999 to implement three of the seven recommendations agreed to
by the Government arising out of Treasury's Review of the GST financial
supply provisions. The measures requiring legislative change and
included in this Bill:
· increase the first limb of the financial acquisitions threshold
from $50,000 to $150,000;
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
· exclude financial supplies consisting of a borrowing made
through the provision of a deposit account by an Australian
authorised deposit-taking institution from the current
concession for borrowings; and
· allow taxpayers who account on a cash basis to treat an
acquisition made under a hire purchase agreement as though
they do not account on a cash basis.
Implementation of the remaining measures require changes to the A New
Tax System (Goods and Services Tax) Regulations 1999.
Date of effect: 1 July 2012.
Proposal announced: The Government announced on 11 May 2010 that
it would enact a package of seven measures in response to Treasury's
Review of the GST financial supply provisions.
Financial impact: The package of financial supply measures is expected
to be revenue neutral when taken as a whole.
Compliance cost impact: Low.
GST treatment of new residential premises
Schedule 4 to this Bill amends the A New Tax System (Goods and Services
Tax) Act 1999 to ensure that sales or long-term leases of new residential
premises by a registered entity are taxable supplies and that sales or
long-term leases of residential premises (other than new residential
premises) are input taxed supplies.
Date of effect: Except for item 2 (clarifying the definition of `new
residential premises') which applies on or after the day this Schedule
commences, the provisions take effect from 27 January 2011 (the date of
the Government's announcement). This start date will reduce the risk to
revenue that might otherwise arise from behavioural change. These
amendments contain a transitional provision to ensure that developers
who were `commercially committed' to arrangements to develop premises
before 27 January 2011 are not disadvantaged by the measure.
Proposal announced: This measure was announced in the Assistant
Treasurer and Minister for Financial Services and Superannuation's
Media Release No. 020 of 27 January 2011.
6
General outline and financial impact
Financial impact: This measure results in an ongoing gain to goods and
services tax (GST) revenue which is estimated to be $60 million over the
forward estimates period, with cash receipts from this measure paid to the
States and Territories. This results in additional payments of $55 million
to the States and Territories over the forward estimates period, with the
difference between payments due to a timing delay between the accrual of
GST revenue and cash collections.
Compliance cost impact: Low.
Deductible gift recipients
Schedule 5 to this Bill amends the Income Tax Assessment Act 1997 to
update the list of deductible gift recipients (DGRs) by adding one entity as
a DGR, and changing the name of another entity previously specifically
listed.
Date of effect: The listing of Rhodes Trust in Australia applies to gifts
made after 20 October 2011. The name change from `Playgroup Australia
Incorporated' to `Playgroup Australia Limited' applies from
25 October 2010.
Proposal announced: The addition of Rhodes Trust in Australia has not
previously been announced.
Financial impact:
Organisation 2011-12 2012-13 2013-14 2014-15
Rhodes Trust in
-$0.06m -$0.75m -$0.75m -$0.75m
Australia
Compliance cost impact: Nil.
Miscellaneous amendments to the tax laws
Schedule 6 to this Bill makes technical corrections and other minor and
miscellaneous amendments to the taxation laws. These amendments are
part of the Government's commitment to the care and maintenance of the
tax system.
Date of effect: These amendments commence from Royal Assent unless
otherwise stated.
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
Proposal announced: These amendments were all foreshadowed by
release in draft form on the Treasury website on 11 October 2011.
Financial impact: The amendment to gives the Commissioner of
Taxation discretion to extend the two-year period that applies to the
capital gains tax exemptions on the disposal of a dwelling (or an interest
in it) by a trustee of a deceased estate (Part 8, comprising items 94 to 96)
is expected to result in a small but unquantifiable cost to revenue.
The other amendments are expected to have a minimal to nil revenue
impact.
Compliance cost impact: Low to nil.
8
Chapter 1
Electronic portability form
Outline of chapter
1.1 Schedule 1 to this Bill amends the Superannuation Industry
(Supervision) Act 1993 (SIS Act) and the Retirement Savings Accounts
Act 1997 (RSA Act) to enable certain superannuation fund members to
electronically request the consolidation of their superannuation benefits
through the Australian Taxation Office (ATO). The scheme is referred to
as the electronic portability form.
1.2 For the purposes of this chapter, references to a `superannuation
fund' or `fund trustee', `member' and `benefits' also include a retirement
savings account (RSA) provider, an RSA account holder and benefits held
in RSA accounts.
1.3 This Schedule also:
· grants the Commissioner of Taxation (Commissioner)
general administration of the scheme and related tax file
number (TFN) provisions;
· amends the TFN provisions for the purposes of the scheme;
and
· removes a redundant reference in relation to the division of
general administration of the SIS Act.
Context of amendments
1.4 The current arrangements for the portability of superannuation
allow members of certain superannuation funds to move their benefits
between funds. Broadly, the member applies to their fund in writing and
completes the required documentation. The transferring fund verifies the
identity of the member, using certified member identity documents. The
transferring fund must send the member's benefits to the receiving fund
nominated by the member when all the requirements have been satisfied.
1.5 Some fund members may be unaware they have become `lost'.
A superannuation fund may report a member as `lost' to the ATO, for
example, when the fund cannot contact the member. The ATO records
9
Tax Laws Amendment (2011 Measures No. 9) Bill 2011
the account details of such `lost' members on the lost members register.
The primary aim of this register is to assist in reuniting lost members with
their superannuation benefits. The Commissioner is required to keep the
lost members register by the Superannuation (Unclaimed Money and Lost
Members) Act 1999.
1.6 Lost members may search for their superannuation accounts
using SuperSeeker, an online tool on the ATO's website. SuperSeeker
also allows individuals to search for unclaimed superannuation money and
other superannuation amounts held by the ATO. If SuperSeeker matches
the member's details with those stored on the lost members register, the
member may either contact the fund trustee directly to update their details,
or consolidate their accounts by transferring or rolling over their benefits
under the current portability arrangements.
Electronic portability form
1.7 The proposed electronic portability form will provide certain
members with a simplified and streamlined electronic method to facilitate
consolidating their benefits.
1.8 Lost members, after first locating their benefits through
SuperSeeker, may pre-fill a transfer request and submit it electronically to
the ATO. The ATO will verify the identity of the member and match it to
the recorded account, and will also verify the status of the nominated
receiving fund. If the verification processes are successfully completed,
the ATO will electronically transmit the transfer request to the fund that
reported the member as lost (the transferring fund). The transferring fund
will then be able to send the member's benefits to the nominated receiving
fund under the current portability arrangements.
1.9 In some cases electronic submission of the transfer request is not
available. Circumstances in which this may occur include:
· the member's account details are not recorded on the lost
members register;
· insufficient member details are provided on the transfer
request;
· details about the nominated receiving fund are not provided;
· the member has previously submitted a form electronically
for the same account;
· the ATO cannot verify the member's identity;
10
Electronic portability form
· the ATO cannot verify the status of the receiving fund; or
· the transferring fund cannot receive electronic
correspondence from the ATO.
1.10 In these circumstances, the member may print the transfer
request and post it to their fund.
Summary of new law
1.11 This Schedule amends the SIS Act and the RSA Act to permit
regulations to prescribe the operating details of the electronic portability
form and to specify additional requirements.
1.12 This Schedule also grants the Commissioner general
administration of the scheme and of related TFN provisions.
1.13 This Schedule amends the TFN provisions to permit the
Commissioner to request a member's TFN and disclose it to a
superannuation fund trustee for the purposes of the scheme, and to include
the TFN on the transfer request.
1.14 This Schedule also makes a minor amendment by removing a
redundant reference in relation to the division of general administration of
the SIS Act.
Comparison of key features of new law and current law
New law Current law
Regulations may prescribe a scheme Regulations may prescribe standards
for the portability of superannuation relating to the portability of
benefits administered by the superannuation benefits.
Commissioner.
The Commissioner has general APRA has general administration of
administration of the prescribed the portability arrangements.
scheme and related TFN provisions.
The Australian Prudential Regulation
Authority (APRA) retains general
administration of the portability
arrangements.
The Commissioner may request a The Commissioner is not permitted to
member's TFN for the purposes of request a member's TFN for the
the prescribed scheme. purposes of the portability
arrangements.
11
Tax Laws Amendment (2011 Measures No. 9) Bill 2011
New law Current law
The Commissioner may require the No equivalent.
member's TFN to be included on the
transfer request.
The Commissioner may disclose a The Commissioner is not permitted to
member's TFN to a fund trustee for disclose a member's TFN to a fund
the purposes of the prescribed trustee for the purposes of the
scheme. portability arrangements.
The member is taken to have quoted No equivalent.
their TFN to the trustee, and quoted it
at the time the Commissioner informs
the trustee of the member's TFN.
Detailed explanation of new law
Regulations may prescribe a scheme
1.15 The regulations may prescribe a scheme that allows the
Commissioner to receive requests from fund members for the roll-over or
transfer of their superannuation benefits, and to forward those requests to
the trustee of the member's superannuation fund. [Schedule 1, item 8,
section 39A of the RSA Act; item 17, section 34A of the SIS Act]
1.16 These amendments allow the operating details of the scheme to
be set out in the Superannuation Industry (Supervision) Regulations 1994
and the Retirement Savings Accounts Regulations 1997. For example, the
regulations may require such requests to be made in an approved form,
including electronically.
1.17 The regulations may limit access to the scheme to individuals
who have a superannuation interest that is recorded on the lost members
register and able to be located through SuperSeeker or similar mechanism.
The scheme may be extended to cover other superannuation accounts in
the future as the Stronger Super reforms are progressively implemented.
Current portability regulations may also need to be amended to implement
the electronic portability form.
1.18 A number of headings are inserted as a consequence of the
amendments made by items 8 and 17 of this Schedule. [Schedule 1, items 6,
7, 15 and 16 (new headings)]
1.19 As a consequence of the insertion of new headings, a reference
to provisions in the RSA Act is also updated. [Schedule 1, item 1,
subparagraph 3(1)(a)(ii) of the RSA Act]
12
Electronic portability form
General administration of the electronic portability form
1.20 The Commissioner will have general administration of the
electronic portability form under the SIS Act and the RSA Act, and of
new provisions relating to TFNs. [Schedule 1, item 3, paragraph 3(1)(e) of the
RSA Act; item 13, paragraph 6(1)(g) of the SIS Act]
1.21 These amendments do not affect APRA's general administration
of the current portability arrangements.
1.22 As a result of these amendments, the provisions relating to the
form and TFNs are `taxation laws', as defined in the Income Tax
Assessment Act 1997. Consequently, they are subject to administrative
provisions of Schedule 1 to the Taxation Administration Act 1953
(TAA 1953) and offence provisions relating to taxation laws, including:
· confidentiality of taxpayer information (Division 355);
· penalties relating to false or misleading statements
(Subdivision 284-B); and
· offences relating to TFNs (Part III, Division 2,
Subdivision 2-BA).
1.23 The notes in subsection 3(1) of the RSA Act and in
subsection 6(1) of the SIS Act are amended to clarify the provisions to
which the confidentiality provisions in Division 355 in Schedule 1 to the
TAA 1953 apply. Additionally, the note in subsection 6(1) of the SIS Act
removes the reference to self managed superannuation funds. [Schedule 1,
item 4, subsection 3(1)(note) of the RSA Act; item 14, subsection 6(1)(note) of the
SIS Act]
1.24 As a consequence of these changes, references elsewhere in the
SIS Act and the RSA Act are updated. [Schedule 1, item 2,
subparagraph 3(1)(a)(iii) of the RSA Act; item 12, paragraph 6(1)(b) of the SIS Act]
1.25 Additionally, the Commissioner is included as a `regulator' in
the RSA Act. [Schedule 1, item 5, new paragraph 16(c) of the RSA Act]
Tax file numbers
1.26 The Commissioner may request a member's TFN for the
purposes of administering the scheme [Schedule 1, item 9, subsection 138A(1) of
the RSA Act; item 18, subsection 299NA(1) of the SIS Act] and may require the
quotation of the member's TFN on the form [Schedule 1, item 10,
subsection 144(2A) of the RSA Act; item 19, subsection 299U(2A) of the SIS Act].
13
Tax Laws Amendment (2011 Measures No. 9) Bill 2011
1.27 It is not compulsory for the member to quote their TFN on the
transfer request. However, the regulations may specify that failure to
quote the TFN may affect whether the Commissioner can pass on the
member's request to the transferring fund's trustee. [Schedule 1, item 9,
subsection 138A(2) of the RSA Act; item 18, subsection 299NA(2) of the SIS Act]
1.28 Members who do not wish to disclose their TFN on the transfer
request may apply directly to their fund in writing to roll-over or transfer
their benefits to another fund under the current portability requirements.
The quotation of their TFN is not mandatory on the standard portability
form in Schedule 2A to the Superannuation Industry (Supervision)
Regulations 1994 or on the fund's transfer form.
1.29 The Commissioner may disclose the member's TFN to the
trustee of the transferring fund for the purposes of the scheme. [Schedule 1,
item 9, subsection 138A(3) of the RSA Act; item 18, subsection 299NA(3) of the SIS Act]
1.30 The Commissioner's disclosure of the member's TFN to the
transferring fund's trustee would occur when the Commissioner
electronically transmits the transfer request to the trustee.
1.31 If the Commissioner discloses the member's TFN to the
transferring fund's trustee, the member is taken to have quoted their TFN
to the trustee for the purposes of the superannuation legislation and at the
time the Commissioner discloses the TFN to the trustee. [Schedule 1, item 9,
subsection 138A(4) of the RSA Act; item 18, subsection 299NA(4) of the SIS Act]
1.32 These amendments to the TFN provisions will enhance the
effective administration of the superannuation system by allowing the
transferring fund to better match the transfer request to their member
records. It also complements other TFN provisions that allow fund
trustees to use TFNs to locate member accounts and to facilitate the
consolidation of multiple member accounts.
1.33 TFN use by superannuation funds is governed by the
Privacy Act 1988 and the TAA 1953 to ensure member privacy is
protected and to prevent unauthorised use of TFNs.
Minor amendment
1.34 Subparagraph 6(1)(a)(xii) of the SIS Act is amended to remove
the reference to Division 1. Division 1 is effectively excluded by the
words of paragraph 6(1)(a) of the SIS Act, `to the extent that
administration of the provisions is not conferred on the Commissioner of
Taxation'. [Schedule 1, item 11, subparagraph 6(1)(a)(xii) of the SIS Act]
14
Electronic portability form
Application provisions
1.35 These amendments apply to benefits rolled over or transferred
using the electronic portability form from the day after Royal Assent.
15
Chapter 2
CGT and business restructures -- Part 1:
Share or interest sale facilities for foreign
interest holders in a restructure
Outline of chapter
2.1 Part 1 of Schedule 2 to this Bill amends the Income Tax
Assessment Act 1997 (ITAA 1997) to ensure entities in a restructure can
use a share or interest sale facility to deal with foreign held interests
without Australian tax residents automatically failing a key requirement of
certain capital gains tax (CGT) roll-overs.
2.2 For the purposes of this chapter, an interest holder is considered
to be foreign where the issuing of an interest to that interest holder would
be subject to a foreign law. This means that a foreign interest holder
could also be an Australian resident for tax purposes or could own taxable
Australian property.
2.3 All legislative references in this chapter are to the ITAA 1997
unless otherwise stated.
Context of amendments
2.4 Australian entities may have interest holders who are located in
Australia or abroad. The issuing or transferring of interests when one of
these entities restructures may be subject to a foreign law.
2.5 A share or interest sale facility (referred to as a `share sale
facility') is used by entities when they restructure as it:
· can be unreasonably onerous or impractical for those entities
to comply with the requirements in each relevant foreign
jurisdiction relating to the issuing or transferring of interests;
and
· avoids inadvertent breaches of these requirements where
entities, despite their best intentions, have not ascertained nor
fully understood all the foreign law requirements.
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
2.6 Under a share sale facility, interests issued or transferred under
an entity restructure in relation to the foreign interest holder's interest will
be allocated to the share sale facility instead of to the foreign interest
holder. The share sale facility owns these interests, but ultimately sells
them and gives the capital proceeds (less expenses) to the former foreign
interest holders.
2.7 However, the use of a share sale facility in an entity restructure
may mean that certain requirements of any CGT roll-over relating to that
restructure may not be able to be satisfied. A CGT roll-over allows a
taxpayer to defer any capital gain or capital loss arising when a CGT
event happens in the particular circumstances of the roll-over.
2.8 In particular, some CGT roll-overs for entity restructures require
that all of the interest holders must exchange their interests in the original
entity for interests in the new entity and that each interest holder owns the
same, or in some instances substantially the same, percentage of interests
in the new entity as they owned in the original entity (the `same
ownership requirements'). The entity restructure roll-overs that include
these requirements are contained in the following provisions:
· Subdivisions 124-G, 124-H, 124-I, 124-N, 124-Q and 126-G;
and
· Division 125.
2.9 The same ownership requirements generally cannot be satisfied
where a share sale facility is used to deal with the interests of a foreign
interest holder. This is because the interests are now owned by the share
sale facility and not the foreign interest holder. Therefore, an entity with
foreign interest holders may be reluctant to restructure because the interest
holders that are Australian residents for tax purposes or that are foreign
residents with taxable Australian property would not qualify for certain
CGT roll-overs. If such a restructure occurs, these interest holders would
face immediate CGT consequences from the realisation of their interests
in the original entity.
2.10 Subdivisions 124-G and 124-Q and Division 125 already allow
the same ownership requirements to be satisfied where a share sale facility
is used to deal with certain foreign holders. However,
Subdivisions 124-G and 124-Q simply disregard interests held by foreign
holders rather than modifying the provisions so that the same ownership
requirements can still apply to the interests held by the remaining holders.
Subdivision 124-G also restricts this treatment to entities that are
authorised deposit-taking institutions (ADIs).
18
CGT and business restructures -- Part 1: Share or
interest sale facilities for foreign interest holders in a restructure
2.11 For Division 125, the note to subsection 125-70(1) allows
taxpayers access to the demerger roll-over where a share sale facility is
used only if it entails a `two step' process, involving a notional allocation
of the interests to the interest holders followed by an actual allocation to a
nominee.
2.12 These amendments facilitate the use of share sale facilities in a
greater range of CGT entity restructure roll-overs and standardise the
approach so that the interests of foreign interest holders are subject to the
same ownership requirements of the relevant roll-overs as Australian
interest holders.
Summary of new law
2.13 Part 1 of this Schedule treats a foreign interest holder as owning
the relevant interest in an entity at a time the share sale facility owns the
interest in that entity for the purposes of the relevant CGT entity
restructure roll-over provisions.
2.14 For the relevant CGT roll-overs, this treatment ensures that
entities can use a share sale facility in a restructure to deal with the
interests of foreign interest holders without interest holders that are
Australian residents for tax purposes (or foreign residents with taxable
Australian property) automatically failing the same ownership
requirements. The treatment also ensures that ownership requirements are
appropriately maintained.
Comparison of key features of new law and current law
New law Current law
An interest holder that is an An interest holder that is an
Australian resident for tax purposes Australian resident for tax purposes
(or a foreign resident with taxable (or a foreign resident with taxable
Australian property) could satisfy the Australian property) may fail the
same ownership requirements under same ownership requirements under
certain CGT entity restructure certain CGT entity restructure
roll-overs where a share sale facility roll-overs where a share sale facility
is used to deal with the interests of is used to deal with the interests of
foreign interest holders. foreign interest holders.
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
Detailed explanation of new law
2.15 Part 1 of this Schedule replaces the existing share sale facility
provisions in Subdivisions 124-G and 124-Q and inserts a broader share
sale facility provision into the ITAA 1997 in three places. This is
achieved by inserting a new Subdivision into Division 125 and inserting a
new provision into Subdivisions 124-A and 126-G. Each of these new
provisions uses the same general approach to allow the operation of the
relevant CGT restructure roll-over provisions where a share sale facility is
used to deal with the interests of foreign interest holders. [Schedule 2,
items 1, 3, 8, 9 and 10, sections 124-20, 125-235 and 126-265]
2.16 As Subdivision 124-A contains the share sale facility provisions
for the relevant replacement-asset roll-overs contained in Division 124,
notes are inserted into each relevant Subdivision in Division 124 to alert
taxpayers accessing a roll-over that a share sale facility for foreign interest
holders can be used without failing the same ownership requirements.
[Schedule 2, items 2 and 4 to 7, item 15, paragraphs 124-360(1)(c)(note),
124-370(1)(e)(note), 124-445(c)(note) and 124-455(1)(e)(note),
subsection 124-860(6)(note), paragraph 124-1045(1)(d)(note) and
subsections 124-520(1)(note) and 124-525(1)(note)]
2.17 These amendments do not replace the approach to accommodate
certain share sale facilities in the note to subsection 125-70(1) of the
demerger relief provisions, as the note covers a broader range of use of
share sale facilities. Where a restructure involving the use of a share sale
facility for foreign interest holders qualifies for Division 125 roll-over and
the share sale facility could be accommodated under either the existing
law or these amendments, taxpayers can choose the approach to use
because it will result in the same outcome.
2.18 These amendments have no application where the management
of an entity that is restructuring decides to comply with the foreign law of
the relevant jurisdiction when issuing or transferring the interest. These
amendments have potential application only where a share sale facility is
used for foreign interest holders in conjunction with an entity restructure
covered by certain CGT roll-overs.
Facilitating the use of share sale facilities for foreign interest holders for
various CGT restructure roll-overs
2.19 These amendments facilitate the use of share sale facilities in the
CGT entity restructure roll-overs in Subdivisions 124-G, 124-H, 124-I,
124-N, 124-Q and 126-G and Division 125. These amendments do this by
treating a foreign interest holder as owning an interest in a relevant entity
at a time where the share sale facility owns that interest, provided certain
conditions are satisfied (paragraphs 2.25 to 2.28 discuss the relevant
20
CGT and business restructures -- Part 1: Share or
interest sale facilities for foreign interest holders in a restructure
conditions). Where the foreign interest holder is treated as owning the
interest, the share sale facility will not be treated as owning the interest.
[Schedule 2, items 1, 9 and 10, sections 124-20, 125-235 and 126-265]
2.20 Under these amendments, using a share sale facility ensures that
Australian residents for tax purposes (or foreign residents with taxable
Australian property) can satisfy the same ownership requirements in each
of the relevant roll-overs. This is because the original interest and the
replacement interest are treated as being owned by the same foreign
interest holder at the relevant test times for each of the relevant roll-overs.
The foreign interest holder is an Australian resident for tax purposes (or
owns taxable Australian property)
2.21 Where the foreign interest holder is an Australian resident for
tax purposes (or a foreign resident with taxable Australian property), these
amendments also ensure that these interest holders can access the relevant
CGT entity restructure roll-overs where the share sale facility becomes the
owner of the interest. Where a roll-over is applied, this will defer any
CGT consequences for the foreign interest holder until a later dealing with
the asset, typically when the share sale facility disposes of the interest.
[Schedule 2, items 1, 9 and 10, sections 124-20, 125-235 and 126-265]
2.22 To ensure these particular entities can access the relevant CGT
roll-overs in Division 124, where the conditions in paragraphs 2.25 to 2.28
are satisfied, the provisions also treat the foreign interest holder as owning
the interest the share sale facility owns for the purposes of sections 124-10
and 124-15. This ensures that the requirements in these sections that the
same entity own an original CGT asset or assets and a replacement CGT
asset or assets, will be satisfied. [Schedule 2, item 1,
subparagraph 124-20(3)(b)(ii)]
2.23 The provisions also treat the foreign interest holder as owning
the interest the share sale facility owns for the purposes of
subsection 115-30(1). This ensures the duration that the foreign interest
holder owned the interest is taken into account when determining access
to the CGT discount. [Schedule 2, items 1 and 9, subparagraph 124-20(3)(b)(i) and
paragraph 125-235(3)(b)]
2.24 Australian residents for tax purposes (or foreign residents with
taxable Australian property) that acquire a replacement interest will
already satisfy the key requirement that the same owner own the original
interest and the replacement interest. Therefore, the additional treatment
for foreign interest holders contained in paragraphs 2.22 and 2.23 will not
directly impact these interest holders.
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
Conditions for treating the foreign interest holder as owning the interest
2.25 The conditions that need to be satisfied for a foreign interest
holder to be treated as owning an interest for the purposes of the relevant
restructure roll-over provision are:
· the foreign interest holder owns an interest in a relevant
entity (or for Subdivision 124-I cases, owns an interest in a
body, with or without rights relating to the body);
· a transaction happens to the original interest;
· a foreign law impedes an entity's ability to issue or transfer
an interest to the foreign interest holder, or alternatively, it
would be impractical or unreasonably onerous to determine
whether a foreign law impedes the entity's ability to issue or
transfer the interest to the foreign interest holder;
· a share sale facility will acquire the interest instead of the
foreign interest holder; and
· under the share sale facility, the foreign interest holder is
entitled to receive the capital proceeds (less any expenses or
taxes) when the share sale facility disposes of the interest.
[Schedule 2, items 1, 9 and 10, subsections 124-20(1), (4) and (5), 125-235(1) and
126-265(1)]
An entity is facing an impediment in issuing or transferring an interest
2.26 These provisions will apply where a foreign law impedes the
entity's ability to issue or transfer the interest to the foreign interest
holder. This may happen where it is shown that a foreign law had
obstructed or hindered the entity issuing or transferring the interest. This
condition would be satisfied where, for example, the foreign law would
not permit the entity to issue or transfer a particular interest to a foreign
interest holder. [Schedule 2, items 1, 9 and 10, subparagraphs 124-20(1)(c)(i),
125-235(1)(c)(i) and 126-265(1)(c)(i)]
2.27 Alternatively, these provisions will also apply where it would be
impractical or unreasonably onerous to determine whether a foreign law
impedes the entity's ability to issue or transfer the interest. Even where an
entity could ultimately issue or transfer an interest to a foreign interest
holder, this condition would be satisfied where the entity would be
required to incur substantial cost in issuing a prospectus that complies
with the particular foreign law of that country for a relatively small
number of shareholders (by number and value). [Schedule 2, items 1, 9 and 10,
subparagraphs 124-20(1)(c)(ii), 125-235(1)(c)(ii) and 126-265(1)(c)(ii)]
22
CGT and business restructures -- Part 1: Share or
interest sale facilities for foreign interest holders in a restructure
The share sale facility disposes of interests on a pooled basis
2.28 In some circumstances, the share sale facility may dispose of
some or all the interests on a pooled basis. That is, a share sale facility
would dispose of the interests together with the interests that would
ordinarily be allocated to the other foreign interest holders. In these
circumstances, the share sale facility will be required to give the foreign
interest holder an amount equal to their proportion of the capital proceeds
(less expenses or taxes). [Schedule 2, items 1, 9 and 10,
subparagraphs 124-20(1)(e)(ii), 125-235(1)(e)(ii) and 126-265(1)(e)(ii)]
The period when the foreign interest holder is treated as owning the
interest
2.29 Each CGT restructure roll-over specifies when the ownership
requirements are tested. These requirements are tested `just before' and
`just after' a specific time or period, or are tested throughout a particular
period. The concepts `just before' and `just after' take their ordinary
meanings so that the testing begins immediately before and ends
immediately after the relevant time.
2.30 Providing the share sale facility owns the interest in the same
proportion as the foreign interest holder when the ownership requirements
are tested, the ownership requirements will be satisfied in respect of the
foreign interest holder. This is because the foreign interest holder is
treated as owning the interest when the share sale facility owns that
interest.
Example 2.1
Paint Ltd (Paint) has a foreign shareholder that is a foreign tax resident
that owns 1 per cent of the shares in Paint. Australian tax resident
shareholders own the remaining 99 per cent.
Paint proposes to interpose a non-operating holding company,
Brush Ltd (Brush), between itself and its shareholders under an
arrangement where its shareholders dispose of their shares in Paint for
shares in Brush.
Due to the onerous cost of complying with the foreign laws relating to
issuing a prospectus to a single shareholder that owns 1 per cent of the
shares in Paint, a share sale facility is used.
For the Australian shareholders to be eligible for a CGT roll-over in
Subdivision 124-G when they dispose of their shares in Paint, the
Subdivision requires, amongst other things, all the shareholders in
Paint to own shares in Brush just after the completion time and that
each shareholder in Paint owns the same percentage (by number and
value) of shares in Brush as they owned in Paint.
23
Tax Laws Amendment (2011 Measures No. 9) Bill 2011
The new shares in Brush are issued so that each shareholder in Paint
owns the same percentage (by number and value) of shares in Brush
that they owned in Paint, with the exception that the 1 per cent of
shares representing the foreign shareholder's shares are issued to the
share sale facility.
For the purposes of Subdivision 124-G, the foreign shareholder is
treated as owning the 1 per cent of shares in Brush for the time that the
share sale facility owned those shares in Brush. This ensures the same
ownership requirements are satisfied in the Subdivision.
Provided all the other conditions in Subdivision 124-G are satisfied,
the Australian tax resident shareholders will be eligible for the CGT
roll-over.
Application and transitional provisions
2.31 This measure applies to CGT events happening after 7.30 pm
(by legal time in the Australian Capital Territory) on 11 May 2010. These
amendments are retrospective to ensure that transactions that have
occurred since these changes were announced are covered by these
amendments. [Schedule 2, item 11]
2.32 These amendments are not expected to disadvantage taxpayers
that could previously access the roll-overs in Subdivisions 124-G and
124-Q when using a share sale facility to deal with the original interests of
foreign interest holders. This is because the level of regulatory oversight
and reputational risk relevant to an ADI or stapled entity that restructures
would typically mean the restructures could still satisfy the ownership
requirements in Subdivisions 124-G and 124-Q that now need to be
satisfied as a result of the amendments.
2.33 Other taxpayers that are involved in a relevant restructure that
uses a share sale facility for foreign interest holders will benefit from
these amendments.
24
Chapter 3
CGT and business restructures -- Part 2:
CGT demerger relief
Outline of chapter
3.1 Part 2 of Schedule 2 to this Bill excludes an entity from being a
member of a demerger group if the entity is a corporation sole or a
complying superannuation entity.
3.2 All legislative references in this chapter are to the Income Tax
Assessment Act 1997 unless otherwise stated.
Context of amendments
3.3 Division 125 allows taxpayers to choose to obtain a capital gains
tax (CGT) roll-over for a capital gain or capital loss that arises on their
interest in a company or trust because of the demerger of an entity from
the group of which the company or trust is the head entity. This roll-over
aims to make sure that CGT is not an impediment to business restructures
where there is no real change in the underlying economic ownership of the
entities involved.
3.4 Under a demerger, a CGT event happens to a taxpayer's interest
in the head entity and they receive a new interest in the entity that is
demerged. The rollover allows the taxpayer to defer any capital gain or
capital loss realised because of the demerger.
3.5 Certain capital gains or capital losses made by a demerging
entity are also disregarded under Division 125. Certain dividends arising
under a demerger are tax exempt.
3.6 For the relief to be available, the demerger must happen to a
`demerger group'. A demerger group is comprised of the head entity of
the group and one or more demerger subsidiaries (see sections 125-65 and
125-70).
3.7 If the head entity of a demerger group is a corporation sole, the
corporation sole cannot demerge any of its interests in the demerger group
because the corporation sole does not issue ownership interests and
therefore does not have shareholders to whom it could demerge its
25
Tax Laws Amendment (2011 Measures No. 9) Bill 2011
interests in the demerger group. If an entity owned by the corporation
sole demerged any of its interests in the demerger group, Division 125
relief does not currently apply because the corporation sole owns
ownership interests in that entity and the corporation sole is still the head
entity of the `demerger group' as defined under Division 125 (see
subsections 125-65(1) and (3)).
3.8 If the head entity of a demerger group is a superannuation entity,
it is unable to demerge any of its interests in the demerger group. A
`demerger', as defined by Division 125, cannot happen to a demerger
group if the head entity or the demerged entity is a trust which is a
superannuation fund (see paragraph 125-70(1)(g)). Even if complying
superannuation entities could access Division 125 demerger relief, they
would most likely breach relevant regulatory requirements of the
Superannuation Industry (Supervision) Act 1993.
3.9 In summary, groups that have a corporation sole or a complying
superannuation entity as their head entity are unable to benefit from
demerger relief because they can only demerge, or realistically demerge,
by treating an entity below the corporation sole or complying
superannuation entity as the head entity of a demerger group that does not
include the corporation sole or complying superannuation entity.
Summary of new law
3.10 Part 2 of this Schedule excludes an entity from being a member
of a demerger group if the entity is a corporation sole or a complying
superannuation entity. This allows an entity owned by the corporation
sole or complying superannuation entity to qualify as the head entity of a
demerger group.
3.11 The new head entity will be able to demerge entities from the
demerger group and qualify for Division 125 relief.
26
CGT and business restructures -- Part 2: CGT demerger relief
Comparison of key features of new law and current law
New law Current law
Corporations sole and complying Corporations sole and complying
superannuation entities are not superannuation entities can be the
members of demerger groups. This head entity of a demerger group but
allows an entity owned by the are unable to demerge lower level
corporation sole or complying entities in the group and qualify for
superannuation entity to be the head Division 125 relief.
entity of a demerger group. This
entity can now demerge its interests
in a member of the demerger group
and its owners potentially benefit
from Division 125 relief.
Detailed explanation of new law
3.12 These amendments ensure that corporations sole and complying
superannuation entities are not members of demerger groups. [Schedule 2,
item 12, subsection 125-65(2A)]
3.13 This overcomes a problem with the current provisions which do
not allow for demerger relief to accommodate situations where the head
entity of a demerger group is a corporation sole or a complying
superannuation fund.
3.14 In the corporation sole case, nobody holds an ownership interest
in the head entity, and accordingly, no demerger by the head entity can
occur. This is because there are no owners of the head entity to whom
ownership interests in a demerged entity could be issued as required by
section 125-55.
3.15 Similarly, a complying superannuation entity that is the head
entity of a demerger group is unable to demerge interests in a member of
the group under the existing law.
3.16 These amendments prevent a corporation sole or complying
superannuation entity from being a member of a demerger group, and
hence from being the head entity of a demerger group. This allows an
entity owned by the corporation sole or complying superannuation entity
to qualify as the head entity of a demerger group. That head entity can
then demerge its interests in a member of the demerger group to the
owners of the head entity.
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
3.17 The excluded corporation sole or complying superannuation
entity now can qualify for the CGT roll-over (as the taxpayer under
section 125-55) when a capital gain or capital loss arises on its interest in
the head entity as part of a demerger. If relevant, the exemption for
demerger dividends may also be available to the corporation sole or
complying superannuation entity.
3.18 Diagrams 3.1 and 3.2 illustrate two demerger scenarios:
· where a corporation sole cannot demerge (the current law);
and
· a demerger under the amended tax treatment with a
corporation sole as an owner of the head entity of a demerger
group redefined under the amendments.
Diagram 3.1: Corporation sole `cannot demerge'
Corporation Sole A
Retail shareholders (all have ownership
Head Entity (the current law) (ownership
interests below 20%)
interest of 50%)
Company B
Demerger Subsidiary
Company C
Demerger Subsidiary Indicates demerger
group
Corporation Sole A cannot demerge its subsidiaries (Company B or
Company C) as it does not have shareholders (owners) to whom it can
demerge its interests in Company B or Company C. This also restricts
the retail shareholders from benefiting from demerger relief.
28
CGT and business restructures -- Part 2: CGT demerger relief
Diagram 3.2: Corporation sole as owner of a head entity of a
demerger group
Corporation Sole A Retail shareholders (all have ownership
(ownership interest of 50%) interests below 20%)
Taxpayer that benefits Taxpayers that benefit
Company B
Head Entity
Company C
Demerger Subsidiary Indicates demerger
group
These amendments exclude Corporation Sole A from being a member
of a demerger group. This allows Company B to be the new head
entity of a demerger group. Company B can demerge its interests in
Company C to Corporation Sole A and Company B's retail
shareholders, who can benefit from the demerger relief.
Application and transitional provisions
3.19 Part 2 of this Schedule applies to CGT events happening after
7.30 pm (by legal time in the Australian Capital Territory) on
11 May 2010. The amendments are beneficial to taxpayers. [Schedule 2,
item 14]
Consequential amendments
3.20 An amendment is made to paragraph 125-70(1)(g) so that it
refers to a `non-complying superannuation fund' rather than a
`superannuation fund'. The existing paragraph 125-70(1)(g) precludes a
demerger from happening where the original interests or new interests are
in a superannuation fund. The broad coverage of `superannuation fund' is
narrowed to non-complying superannuation funds because the main
29
Tax Laws Amendment (2011 Measures No. 9) Bill 2011
amendment prevents a complying superannuation fund from being part of
a demerger group, which takes them outside the scope of the application
of the existing paragraph 125-70(1)(g). [Schedule 2, item 13,
paragraph 125-70(1)(g)]
30
Chapter 4
CGT business restructures -- Part 3:
Roll-overs for change of incorporation
Outline of chapter
4.1 Part 3 of Schedule 2 to this Bill amends the Income Tax
Assessment Act 1997 (ITAA 1997) to expand the existing capital gains tax
(CGT) roll-over for the change of a body to an incorporated company.
The expanded roll-over applies to entities that change incorporation to
become a Corporations (Aboriginal and Torres Strait Islander) Act 2006
corporation. The expanded roll-over also covers a taxpayer's rights
associated with a body, as well as their ownership interests, and situations
where a body is wound up and replaced by a new company incorporated
under a different law.
4.2 Part 3 also amends the ITAA 1997 to allow for tax neutral
consequences for CGT, depreciating, revenue and trading stock assets of a
body that is wound up and replaced by a new company incorporated under
a different law, and these assets are transferred to the new company.
4.3 All legislative references in this chapter are to the ITAA 1997
unless otherwise stated.
Context of amendments
4.4 Subdivision 124-I currently provides a replacement asset
roll-over for a member of a body that is established under a law (other
than the Corporations Act 2001 (Corporations Act) or a similar foreign
law relating to companies) and, as a result of the body being converted to
a company incorporated under the Corporations Act (or a similar foreign
law), the member receives shares in the company in exchange for their
interests in the body. However, the existing roll-over is subject to
limitations that reduce its effectiveness.
4.5 The existing law does not provide rollover for an Indigenous
body which is converted to a Corporations (Aboriginal and Torres Strait
Islander) Act 2006 corporation -- it is limited to bodies converting their
incorporation to the Corporations Act or a similar foreign law relating to
companies. This results in the members of the body realising a potential
31
Tax Laws Amendment (2011 Measures No. 9) Bill 2011
CGT liability on the conversion of the body to a Corporations (Aboriginal
and Torres Strait Islander) Act 2006 corporation.
4.6 Further, the existing rollover is not available to Indigenous
companies that transfer incorporation from the Corporations Act to the
Corporations (Aboriginal and Torres Strait Islander) Act 2006, which
restricts their flexibility to change their incorporation to suit their
particular circumstances.
4.7 The existing roll-over requires an incorporated body to be
`converted' to a Corporations Act (or similar foreign law) company. As
such the existing rollover does not cater for situations where a body is
wound up and then replaced by a new company incorporated under a
different corporations law.
4.8 Also, the existing roll-over does not accommodate situations
where the members of a body being converted wish to be compensated
with additional shares in the new company for the value of rights (separate
to their ownership interests) they held in the incorporated body.
4.9 This is because the existing roll-over only allows the new
company to issue the member shares in substitution for the member's
ownership interests in the body. This restricts taxpayers from receiving
shares that reflect the value of their formerly held rights. They must either
sacrifice the rights they previously had in the body or be ineligible for the
rollover and incur a CGT liability.
4.10 Finally, if a body is wound up and replaced by a newly
incorporated company, this process may trigger the realisation of CGT
assets, revenue assets, depreciating assets and trading stock, and loss of an
asset's pre-CGT status, causing the body to incur a tax liability or suffer a
disadvantage, which will be to the detriment of its members.
Summary of new law
4.11 These amendments allow Indigenous bodies to incorporate as
Corporations (Aboriginal and Torres Strait Islander) Act 2006
corporations without immediate CGT consequences for the body's
members. Also, these amendments allow Indigenous companies
incorporated under the Corporations Act to change their incorporation to
the Corporations (Aboriginal and Torres Strait Islander) Act 2006
without immediate CGT consequences.
32
CGT business restructures -- Part 3: Roll-overs for change of incorporation
4.12 In addition, these amendments extend the existing roll-over by
allowing the value of rights associated with a body to be reflected in the
shares issued by the company, when the body changes its incorporation.
4.13 These amendments also allow members to access the roll-over
where the body winds up and is replaced by a new company incorporated
under a different law (the `reincorporation roll-over').
4.14 Finally, these amendments provide a tax neutral outcome for the
CGT, depreciating, revenue and trading stock assets of a body that winds
up and is replaced by a company incorporated under a different law.
Comparison of key features of new law and current law
New law Current law
The roll-over applies where The roll-over applies where
incorporated bodies convert to the incorporated bodies convert to the
Corporations Act, a similar foreign Corporations Act or a similar foreign
law, or the Corporations (Aboriginal law.
and Torres Strait Islander) Act 2006.
The roll-over also applies where
Indigenous corporations convert from
the Corporations Act to the
Corporations (Aboriginal and Torres
Strait Islander) Act 2006.
The roll-over allows shares to be The roll-over requires the company to
issued to reflect the value of the issue the member with shares in
member's interests in the body and substitution for their interests in the
any rights associated with the body. body.
The roll-over allows for a body to be The roll-over requires that a body
wound up and replaced by a new must convert to a company without
company. creating a new legal entity.
A roll-over provides a tax neutral The transfer of assets from a body to
outcome for the CGT, depreciating, a new company, where the body is
revenue and trading stock assets winding up and being replaced by the
transferred from a body to a company new company, has income tax
where the body is winding up and consequences.
reincorporating and the taxpayer
chooses the reincorporation roll-over.
Detailed explanation of new law
4.15 Part 3 of this Schedule repeals the existing provisions of
Subdivision 124-I, which provides a roll-over for conversion of a body to
33
Tax Laws Amendment (2011 Measures No. 9) Bill 2011
an incorporated company, and replaces them with provisions allowing for
a more flexible CGT roll-over where a body that is incorporated under one
law is converted to, or replaced with, a company incorporated under a
different law. [Schedule 2, item 15, section 124-510]
4.16 The provisions aim to ensure that the CGT consequences of a
body changing incorporation do not deter its members from changing
the body's incorporation to either the Corporations Act (or a similar
foreign law) or the Corporations (Aboriginal and Torres Strait Islander)
Act 2006. [Schedule 2, item 15, section 124-515]
4.17 The roll-over provisions have separate sections for changes of
incorporation that do not involve the creation of a new legal entity and for
those that involve the original body being wound up and a new company
being formed. Subdivision 124-A provides the consequences for
replacement-asset roll-overs generally. However, these amendments
insert specific provisions modifying the operation of Subdivision 124-A
where:
· shares in a company replace a mix of pre-CGT and post-CGT
interests and rights in a body; and
· rights as a member of a Corporations (Aboriginal and Torres
Strait Islander) Act 2006 corporation replace a mix of
pre-CGT and post-CGT interests and rights in a body.
[Schedule 2, item 15, sections 124-520, 124-525, 124-530 and 124-535]
Change of incorporation without change in entity
Conditions for the roll-over to apply
Eligible changes of incorporation
4.18 These amendments provide a CGT roll-over for members of
bodies that change their incorporation from one law to another without
forming a new legal entity where:
· a body incorporated under a law other than the Corporations
Act (or a similar foreign law relating to companies) changes
its incorporation to either the Corporations Act or a similar
foreign law -- this roll-over is a continuation of the roll-over
currently available under Subdivision 124-I ; or
· a body incorporated under a law other than the Corporations
(Aboriginal and Torres Strait Islander) Act 2006 changes its
incorporation to that Act.
[Schedule 2, item 15, paragraphs 124-520(1)(a) and (b)]
34
CGT business restructures -- Part 3: Roll-overs for change of incorporation
Example 4.1
Farming Co-op Ltd (Farming) is a cooperative incorporated under the
Cooperatives Act 1992 (NSW). Its members have decided to change its
incorporation from a cooperative to a company incorporated under the
Corporations Act.
As the Cooperatives Act 1992 (NSW) allows incorporation to be
transferred to the Corporations Act, Farming can convert its
incorporation to being a Corporations Act company without needing to
form a new legal entity.
This allows its members to access the section 124-520 roll-over if the
other conditions are met.
Ownership test
4.19 In order for the roll-over to apply, it must be reasonable to
conclude that there is no significant difference between the ownership, or
the mix of the ownership, of the body just before and just after the
conversion. This takes account of both the ownership of the body (that is,
the ownership of membership interests in the body) and the ownership of
rights relating to the body that were held by owners of the body. This
ensures that the economic ownership of the entities remains substantially
the same just before and just after the conversion of the body. [Schedule 2,
item 15, paragraph 124-520(1)(c)]
4.20 The first part of this ownership test requires that it is reasonable
to conclude that there is no significant difference between the ownership
of the body and rights relating to the body (held by the entities that owned
the body) just before conversion occurs, and the ownership of the
company just after conversion. This test focuses solely on who owns the
body (including associated rights), not how much they own. [Schedule 2,
item 15, subparagraph 124-520(1)(c)(i)]
4.21 The second part of this ownership test, which concerns the mix
of ownership, requires the owners of the body to have no significant
difference between their proportional ownership of the company just after
the conversion and their proportional ownership of the body just before
the conversion occurred. This takes into account how much of the body
(including associated rights) and how much of the company each member
owns at the relevant times to assess whether there is a consistent mix of
ownership. [Schedule 2, item 15, subparagraph 124-520(1)(c)(ii)]
4.22 Taking membership interests and rights relating to the body into
account allows for shares to be issued reflecting the value of those
membership interests and rights. This means that an owner of the body
that holds rights related to the body can have the value of those rights
35
Tax Laws Amendment (2011 Measures No. 9) Bill 2011
reflected in the shares that they receive as an owner of the company. This
was not possible under the former Subdivision 124-I. [Schedule 2, item 15,
paragraph 124-520(1)(c)]
4.23 Rights relating to the body encompass non-ownership interests
in the body. For example, a member of an agricultural cooperative may
have a right to a percentage of production of the cooperative because they
are an active participant in running the business. This type of right would
be of value to the taxpayer and, under these amendments, can be reflected
in the ownership of the company with the issue of additional shares.
4.24 This part of the ownership test requires that it is reasonable to
conclude that there is no significant difference between the mix of
ownership before and after conversion. This allows for some very minor
differences in mix of ownership before and after conversion which may be
necessary to facilitate the conversion. However, any large discrepancy in
mix of ownership before and after conversion would make the taxpayer
ineligible for the roll-over.
4.25 This part of the ownership test requires a value to be ascribed to
the ownership interests before and after the conversion. In some
circumstances it may be easy to value ownership interests and compare
those values before and after the conversion. In other circumstances it
may be very difficult or costly to value ownership interests. If it is very
difficult or costly to value ownership interests, it may be reasonable to
conclude that there is no significant difference in the mix of ownership
before and after the conversion where there is appropriate regulatory
oversight of the conversion.
Example 4.2
Continuing from Example 4.1, Farming converts to a Corporations Act
company, Growers Ltd, and Farming's members receive shares in
Growers Ltd as a replacement for their ownership interests in Farming
and rights associated with Farming.
Farming has three members, Renee, Angelo and Tomas. Each of them
has an equal ownership interest worth $20,000 in Farming.
Renee and Tomas work full time for Farming, while Angelo only
contributed initial capital to Farming and does not actively participate
in running the business. Accordingly, Renee and Tomas have an equal
participation right, which has a value of $10,000 to Renee and Tomas
respectively, to the first 25 per cent of Farming's profits before the
residual 75 per cent is evenly divided between Renee, Angelo and
Tomas.
Upon conversion to a company, Growers Ltd issues 400 shares, which
are divided between Renee, Angelo and Tomas.
36
CGT business restructures -- Part 3: Roll-overs for change of incorporation
Renee and Tomas each receive 150 shares on account of their
ownership interest in Farming and their ownership of the participation
right relating to the body -- 100 shares for the ownership interest and
50 shares for the participation right. Angelo receives 100 shares for
his ownership interest in Farming.
Considering the shares received by Renee, Angelo and Tomas, it is
reasonable to conclude that there is no significant difference between
ownership before and after conversion. This is because the division of
the shares between Farming's members just after the conversion
replicates the total ownership of Farming and the ownership of the
participation rights just before conversion. This means that the
conditions for the roll-over to apply have been met.
Conditions for the taxpayer to choose the roll-over
4.26 If the conditions for the roll-over to apply are met, the taxpayer
may choose the roll-over where certain other conditions are satisfied.
First, the taxpayer must receive only shares in the new company.
Therefore, any rights relating to the body that were held by the taxpayer
prior to the conversion, must be reflected in new shares that replicate their
value to the taxpayer. This means that the taxpayer cannot have a
previously held right relating to the company, continue in existence or
have a new right in the company granted to them in exchange for their
interests in the original body. Similarly, the taxpayer's membership
interests in the body should no longer exist when shares in the company
are issued to them. [Schedule 2, item 15, paragraph 124-520(2)(a)]
4.27 Second, the taxpayer must be an Australian resident at the time
the body is converted to a company or, if the taxpayer is a foreign
resident, the interests in the body and any rights related to the body that
they held must have been taxable Australian property just before the
conversion time, and the shares in the company they receive must be
taxable Australian property when they are issued. [Schedule 2, item 15,
paragraph 124-520(2)(b)]
4.28 If these other conditions are met, the taxpayer may choose to
obtain the roll-over, with the standard roll-over consequences set out in
Subdivision 124-A applying. Generally, this means a taxpayer that
satisfies the conditions for the roll-over disregards any capital gains or
capital losses arising from the ending of their membership interests in the
body or rights relating to the body.
4.29 However, these amendments make specific modifications to the
standard roll-over consequences for this roll-over where the taxpayer has a
mix of pre-CGT and post-CGT interests and rights. These modifications
are set out in paragraphs 4.49 to 4.55.
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
The Corporations (Aboriginal and Torres Strait Islander) Act 2006 and
the rights as a member of a Corporations (Aboriginal and Torres Strait
Islander) Act 2006 corporation
4.30 Corporations (Aboriginal and Torres Strait Islander) Act 2006
corporations do not issue shares to their members but issue `rights as a
member of the Corporations (Aboriginal and Torres Strait Islander)
Act 2006 corporation'. The term `rights as a member of the Corporations
(Aboriginal and Torres Strait Islander) Act 2006 corporation' describes
the bundle of rights that members of a Corporations (Aboriginal and
Torres Strait Islander) Act 2006 corporation have in relation to the
corporation. These rights may include allowing a member to:
· attend, speak and vote at general meetings;
· be made a director;
· put forward resolutions at general meetings;
· ask the directors to call a general meeting; and
· inspect the records of the corporation.
4.31 While the conditions for taxpayers to choose the roll-over refer
to shares, the roll-over applies to conversions of bodies to Corporations
(Aboriginal and Torres Strait Islander) Act 2006 corporations, even
though they do not issue shares to members. Instead, when a body is
converted to a Corporations (Aboriginal and Torres Strait Islander)
Act 2006 corporation, the roll-over conditions are modified to apply in
relation to `rights as a member of the Corporations (Aboriginal and
Torres Strait Islander) Act 2006 corporation' in the same way they apply
to shares of a non-Corporations (Aboriginal and Torres Strait Islander)
Act 2006 corporation. [Schedule 2, item 15, subsection 124-520(3)]
4.32 The taxpayer's previously held ownership interests and any
rights relating to the original body should be replaced by rights as a
member of the Corporations (Aboriginal and Torres Strait Islander)
Act 2006 corporation. [Schedule 2, item 15, subsections 124-520(2) and (3)]
Example 4.3
River Shop Inc (River Shop) is an indigenous store that is currently
incorporated under the Associations Act 2003 (NT). The members of
River Shop have decided to transfer its incorporation to the
Corporations (Aboriginal and Torres Strait Islander) Act 2006. They
are able to transfer the body's incorporation without needing to form a
new legal entity.
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CGT business restructures -- Part 3: Roll-overs for change of incorporation
River Shop's incorporation is transferred to the Corporations
(Aboriginal and Torres Strait Islander) Act 2006 and, accordingly,
River Shop's members have their membership interests in the
association replaced by `rights as a member of a Corporations
(Aboriginal and Torres Strait Islander) Act 2006 corporation' (and
their membership interests cease to exist). These rights are guaranteed
by the Corporations (Aboriginal and Torres Strait Islander) Act 2006
and allow members to attend, speak and vote at general meetings, be a
director, put forward resolutions at general meetings, ask the directors
to call a general meeting and inspect the records of the corporation.
River Shop's members would be eligible to choose the conversion of
incorporation CGT roll-over if the conversion satisfies the ownership
test (see paragraphs 4.19 to 4.25).
Exception for certain demutualisations
4.33 The provisions do not apply to demutualisation of entities if
Division 326 of Schedule 2H to the Income Tax Assessment Act 1936
applies to the demutualisation in question. Division 326 applies to mutual
entities other than insurance companies and health insurers, and sets out
the CGT consequences for demutualisation. [Schedule 2, item 15,
subsection 124-520(4)]
The old corporation is wound up
Conditions for a roll-over to apply
Eligible reincorporations
4.34 These amendments provide a CGT roll-over for members of
bodies that change their incorporation from one law to another where the
old incorporated body is wound up and is replaced by another corporation.
[Schedule 2, item 15, section 124-525]
4.35 This CGT roll-over applies to the same set of changes in
incorporation as the CGT roll-over for conversions (see paragraph 4.18).
[Schedule 2, item 15, paragraphs 124-525(1)(a) and (b)]
4.36 This CGT roll-over requires the original body to cease to exist
and the company which is replacing it to continue to exist after the time
the members of the original body have received shares in the new
company, or, if it is a Corporations (Aboriginal and Torres Strait
Islander) Act 2006 corporation, received rights as a member of the
Corporations (Aboriginal and Torres Strait Islander) Act 2006
corporation. [Schedule 2, item 15, paragraph 124-525(1)(c)]
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
4.37 The time when the members receive the shares in the company
or their rights in the Corporations (Aboriginal and Torres Strait Islander)
Act 2006 corporation, is known as the `switch time'. The switch time is
indicative of when the new company has effectively taken over from the
original incorporated body, even though the latter may still exist.
[Schedule 2, item 15, paragraph 124-525(1)(c)]
Example 4.4
Town Store Inc (Town Store) was incorporated under a state
association Act, and in order to become a Corporations Act company
must wind up and form a new legal entity. The members of Town
Store want to wind up Town Store and incorporate a new company
under the Corporations Act.
On 15 October 2010, in preparation for winding up Town Store, its
members incorporated a new company, Big Store Ltd, under the
Corporations Act. Big Store Ltd issued shares to the members of
Town Store on the same day.
The time when the members received the shares is known as the
`switch time', and is indicative of when Big Store Ltd had effectively
taken over from Town Store, even though Town Store still existed.
4.38 The switch time allows for the new company to be in existence
before the original body is wound up, which reflects the commercial
reality that a company can be created in anticipation of the original body
ending. This allows for the use of `shelf company' arrangements in
winding up the original body and replacing it with a company.
4.39 The shares received must be issued to the members of the
original body for their ownership interests and any other rights relating to
the original body that they possessed. That is, the interests in the original
body are exchanged for shares in the new company or rights received as a
member of the Corporations (Aboriginal and Torres Strait Islander)
Act 2006 corporation. [Schedule 2, item 15, subparagraphs 124-525(1)(c)(i) and
(ii)]
4.40 Similar to the CGT roll-over for conversions of incorporation
described above, the members of the original body must receive only
shares in the new converted company, or, rights as a member of the
Corporations (Aboriginal and Torres Strait Islander) Act 2006
corporation. The shares or rights as a member of the Corporations
(Aboriginal and Torres Strait Islander) Act 2006 corporation must be
received in exchange for the member's interests and rights ending, and not
for any other reasons. [Schedule 2, item 15, paragraph 124-525(1)(d)]
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CGT business restructures -- Part 3: Roll-overs for change of incorporation
Ownership test
4.41 For this CGT roll-over to apply, it must be reasonable to
conclude that there is no significant difference between the ownership, or
the mix of the ownership, of the body just before the switch time and the
ownership, or the mix of the ownership, of the company just after the
switch time. [Schedule 2, item 15, paragraph 124-525(1)(e)]
4.42 Similar to the CGT roll-over for conversions of incorporation,
this provision seeks to ensure that there is consistency in the ownership of
the entities subject to the roll-over. Also, this provision takes both the
ownership of the body, that is, membership interests in the body, and
rights relating to the body that were held by owners of the body, into
account when assessing the continuity of ownership. The discussion in
paragraphs 4.19 to 4.25 about the practical aspects of applying the
ownership test to conversions of incorporation is relevant to applying the
ownership test to reincorporations.
Asset disposal requirement
4.43 For the roll-over to apply the original body must dispose of all
of its CGT assets to the new company. This ensures that the new
company is the entity that continues to carry on the business. The assets
must be disposed of by the switch time, that is, when the members of the
body have received shares in the new company, or, if it is a Corporations
(Aboriginal and Torres Strait Islander) Act 2006 corporation, received
rights as a member of the Corporations (Aboriginal and Torres Strait
Islander) Act 2006 corporation. [Schedule 2, item 15, paragraph 124-525(1)(f)]
4.44 There is a limited exception to this requirement. This exception
recognises that in the process of winding up the original body, the body
may be required to meet existing or expected liabilities. The exception
allows it to retain some assets in order to meet those liabilities. At the
time of the final winding up of the original body, it is expected that any
assets not used to meet liabilities would have been disposed of to the new
company. This may result in the body being required to transfer its assets
in more than one tranche where the assets retained for expected liabilities
are not needed to meet liabilities. [Schedule 2, item 15, paragraph 124-525(1)(f)]
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
Conditions for the taxpayer to choose the roll-over
4.45 If the conditions for the roll-over to apply are met, the taxpayer
may choose the roll-over for their interest in the original body and any
associated rights where certain other conditions apply. The other
conditions are that:
· the taxpayer must have been a member of the original body
just before the switch time;
· the taxpayer's ownership interest in the original body must
end after the switch time (known as the `end time');
· at the end time, the taxpayer must have the shares in the new
company that they received at the switch time; and
· the taxpayer must be an Australian resident, or if they are a
foreign resident, the interests (or any rights) in the original
body held just before the end time must be taxable Australian
property and the shares in the new company received at the
switch time must be taxable Australian property at the end
time.
[Schedule 2, item 15, subsection 124-525(2)]
Example 4.5
Continuing from Example 4.4, after Big Store Ltd issued shares to the
members of Town Store, Town Store was wound up on
20 December 2010. This is known as the `end time' for the purposes
of the roll-over. At this time, the membership interests and any rights
relating to Town Store ceased to exist.
As the new shareholders of Big Store Ltd were members of Town
Store just before the switch time (see Example 4.4) and the following
has occurred:
· their ownership interests in Town Store have ended;
· they received shares in Big Store Ltd; and
· they were Australian residents when their ownership interest in
Town Store ended,
they are able to choose the roll-over if the conditions for the
reincorporation roll-over (see paragraphs 4.34 to 4.44) are met.
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CGT business restructures -- Part 3: Roll-overs for change of incorporation
Corporations (Aboriginal and Torres Strait Islander) Act 2006 and
rights as a member of a Corporations (Aboriginal and Torres Strait
Islander) Act 2006 corporation
4.46 As explained for the roll-over for conversions of incorporation
(paragraphs 4.30 to 4.32), the roll-over for wind ups and reincorporations
also applies to Corporations (Aboriginal and Torres Strait Islander)
Act 2006 corporations in relation to `rights as a member of the
Corporations (Aboriginal and Torres Strait Islander) Act 2006
corporation' in the same way it applies to shares of a non-Corporations
(Aboriginal and Torres Strait Islander) Act 2006 corporation. [Schedule 2,
item 15, subsection 124-525(3)]
Consequences of the roll-overs
4.47 If a taxpayer is entitled to choose the conversion of
incorporation or the reincorporation roll-over, the standard roll-over
consequences set out in Subdivision 124-A apply. Generally, this means
the taxpayer disregards any capital gains or capital losses arising from the
ending of their membership interests in the body or rights relating to the
body.
4.48 However, these amendments make specific modifications to the
standard roll-over consequences where the taxpayer has a mix of pre-CGT
and post-CGT interests and rights. These modifications are set out in
paragraphs 4.49 to 4.55. [Schedule 2, item 15, subsections 124-530(5) and
124-535(3)]
A pre-CGT and a post-CGT mix of original assets of a
non-Corporations (Aboriginal and Torres Strait Islander)
Act 2006 corporation
4.49 Assets acquired before 20 September 1985 are known as
pre-CGT assets. Capital gains and losses realised on these assets are
generally disregarded. Assets acquired on or after 20 September 1985 are
typically known as post-CGT assets.
4.50 If a taxpayer has chosen the conversion of incorporation or
reincorporation roll-over and their interests in the original body or rights
relating to the original body -- the original assets -- that they held were a
mix of pre-CGT and post-CGT assets, there are special consequences for
the shares that replaced the original assets. [Schedule 2, item 15,
subsection 124-530(1)]
4.51 If some of the original assets that were replaced by shares in the
company were pre-CGT assets and some were post-CGT assets, some of
43
Tax Laws Amendment (2011 Measures No. 9) Bill 2011
the shares in the new company are taken to be pre-CGT assets as is
reasonable having regard to the number and market value of the:
· original assets; and
· shares in the new company.
[Schedule 2, item 15, subsection 124-530(2)]
4.52 For the shares which are not pre-CGT assets, the taxpayer
calculates the first element of the cost base of each post-CGT share as is
reasonable having regard to the:
· total cost bases of the original post-CGT assets; and
· number and market value of the replacement post-CGT
shares.
[Schedule 2, item 15, subsection 124-530(3)]
4.53 The reduced cost base of the post-CGT shares is worked out
similarly. [Schedule 2, item 15, subsection 124-530(4)]
Example 4.6
Li is a part owner of a cooperative. Li acquired her ownership interest
in the cooperative in 1982. Its current market value is $80,000. There
is one other owner of the cooperative who has a similar ownership
interest valued at $80,000.
In 1990, Li acquired a right to 25 per cent of the cooperative's
production, on the basis of making a payment of $20,000 to the
business. The cost base of this right is therefore $20,000 and its
current market value is estimated to be $40,000.
In 2011, the cooperative converts its incorporation to the Corporations
Act. Upon doing so, the new company issues Li and her business
partner with shares in the company. In total 1,000 shares are issued.
Li receives 600 shares to replace her ownership interest and right
relating to the cooperative. The shares have a market value of $200
each.
As Li's original assets were a mix of pre-CGT and post-CGT assets,
some of her shares should be regarded as pre-CGT assets. It would be
reasonable for Li to regard 400 of her shares as pre-CGT assets having
regard to the number and market value of the original assets and
shares. This is because two-thirds of Li's ownership value in the
business resides in her ownership interest ($80,000 of the total
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CGT business restructures -- Part 3: Roll-overs for change of incorporation
$120,000 value) which was a pre-CGT asset and consequently she can
treat two-thirds of her shares as pre-CGT assets.
This means Li's 200 remaining shares are to be post-CGT assets.
These shares should take their cost base from the cost base of Li's
post-CGT right. Accordingly, the first element of the cost base of each
of these shares is taken to be $100 (the $20,000 cost base of the right
apportioned equally across the 200 shares).
A pre-CGT and a post-CGT mix of original assets of a Corporations
(Aboriginal and Torres Strait Islander) Act 2006 corporation
4.54 If the taxpayer has chosen the conversion of incorporation or
reincorporation roll-over and, under the conversion or reincorporation,
they receive rights as a member of a Corporations (Aboriginal and Torres
Strait Islander) Act 2006 corporation there is a special rule where the
original assets are a mix of pre-CGT and post-CGT assets. This special
rule reduces compliance costs and reflects the difficulties in valuing
pre-CGT and post-CGT rights in an Indigenous body. [Schedule 2, item 15,
subsection 124-535(1)]
4.55 Under the special rule, if the taxpayer has acquired any of the
original assets before 20 September 1985, they are taken to have acquired
all of their replacement assets before that day. This means that the rights
they receive in the Corporations (Aboriginal and Torres Strait Islander)
Act 2006 corporation are pre-CGT assets. [Schedule 2, item 15,
subsection 124-535(2)]
Example 4.7
Andrew is a member of IndigStore Inc (IndigStore), an incorporated
association which runs an Indigenous store. Andrew acquired his
membership interest in IndigStore in 1984. Also in 2000, Andrew
acquired a right to half the profits from the association if it is wound up
and a profit remains for distribution to members.
In 2011, the members of IndigStore decide to convert it to a
Corporations (Aboriginal and Torres Strait Islander) Act 2006
corporation. Accordingly, Andrew's interest and right relating to
IndigStore are replaced by rights as a member of a Corporations
(Aboriginal and Torres Strait Islander) Act 2006 corporation.
As Andrew's membership interest in IndigStore was a pre-CGT asset,
and even though his right was a post-CGT asset, Andrew's rights as a
member of a Corporations (Aboriginal and Torres Strait Islander)
Act 2006 corporation are taken to be pre-CGT assets.
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
A roll-over for assets of an entity winding up
4.56 These amendments insert a new Part into the Act that provides a
roll-over that applies broadly across the Act to defer taxation
consequences where the original body which is wound up as part of the
process of changing incorporation transfers its assets to a new company.
The asset roll-over automatically applies if the reincorporation roll-over
applies to the original body and the company. [Schedule 2, Part 3-80, item 16,
sections 620-5 and 620-10]
4.57 The asset roll-over ensures that there are tax neutral
consequences where the original body which is wound up disposes of its
assets to a new company and the ownership of the two entities is not
significantly different. This ensures that there is a tax neutral outcome for
the CGT, depreciating, revenue and trading stock assets of the body in
situations where the original body winds up in order to change its form of
incorporation. [Schedule 2, Part 3-80, item 16, section 620-15]
Consequences for CGT assets
4.58 Where an original body disposes of a CGT asset to the company
replacing it because the body ceases to exist, the capital gain or loss the
body makes on the transfer of that CGT asset is disregarded. [Schedule 2,
Part 3-80, item 16, paragraph 620-20(1)(a) and subsection 620-20(2)]
4.59 Also, if any other CGT event happens to a CGT asset of the
body because the body ceases to exist, the capital gain or loss the body
makes on that CGT asset is also disregarded. This caters for
circumstances where the body does not dispose of the asset to the new
company, but instead, an asset is no longer held by the original body in
connection with its winding up. An example of this type of asset is a
lease. [Schedule 2, Part 3-80, item 16, paragraph 620-20(1)(b) and
subsection 620-20(2)]
4.60 Where an original body disposes of a CGT asset to the new
company and the body ceases to exist, the first element of the CGT asset's
cost base for the new company is the asset's cost base when it was
disposed of by the original body. [Schedule 2, Part 3-80, item 16,
subsections 620-25(1) and (2)]
4.61 The first element of the reduced cost base for the CGT asset for
the new company is worked out similarly. [Schedule 2, Part 3-80, item 16,
subsection 620-25(3)]
4.62 If the original body acquired the asset before
20 September 1985, it will retain its pre-CGT status for the new company.
[Schedule 2, Part 3-80, item 16, subsection 620-25(4)]
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CGT business restructures -- Part 3: Roll-overs for change of incorporation
Example 4.8
Yellow Inc (Yellow) is an association, and its members have chosen to
wind it up and incorporate a new company Orange Ltd under the
Corporations Act. The members choose to use the section 124-525
roll-over to disregard capital gains and losses on their ownership
interests in Yellow. Yellow was wound up and its assets transferred to
Orange Ltd.
Just before ceasing to exist, Yellow held business premises purchased
in 1994 for $250,000 with a market value of $380,000 and a parcel of
shares in Silver Pty Ltd purchased in 1983.
Yellow disposes of the business premises and the shares to Orange Ltd
just before it ceases to exist.
As Yellow was the `original body' in the reincorporation roll-over, the
capital gain of $130,000 arising on the disposal of the business
premises to Orange Ltd is disregarded.
The first element of the business premises' cost base for Orange Ltd is
$250,000.
The shares in Silver Pty Ltd now held by Orange Ltd retain their
pre-CGT status in the hands of Orange Ltd.
Consequences for depreciating assets
4.63 The disposal of a depreciating asset to a new company will
cause a `balancing adjustment event' (as defined by section 40-295) to
occur. A balancing adjustment event may require the original body
disposing of the depreciating asset to adjust its taxable income.
4.64 Where there is a difference between the asset's termination
value (that is, the final sale price) and its adjustable value (that is, the
original cost less the decline in value while it was held by the taxpayer) a
balancing adjustment may be assessable or deductible under
section 40-285. However, section 40-285 will not apply if the roll-over
provided by section 40-340 applies.
4.65 These amendments provide roll-over relief for a balancing
adjustment event arising where the original body disposes of a
depreciating asset to the new company because the body ceases to exist
and the disposal involves a CGT event. [Schedule 2, Part 3-80, item 16,
subsections 620-30(1) and (2)]
4.66 The ITAA 1997 applies as if there was roll-over relief under
subsection 40-340(1) and the original body was the transferor and the new
company was the transferee mentioned in that subsection and
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
subsection 328-243(1A). This formulation means there is automatic
roll-over relief under subsection 40-340(1) for a body that is not a small
business entity for any assessable balancing adjustment arising from the
transfer of a depreciating asset to the new company. Although the
provisions treat the body and the company as the transferor and
transferee mentioned in subsection 328-243(1A), this is irrelevant for
an entity that is not a small business entity because its deductions for
its assets are not calculated under Division 328. If the body is a
small business entity, the roll-over relief under subsection 40-340(1)
is contingent on the conditions in subsection 328-243(1A) being
met apart from paragraph 328-243(1A)(c). Satisfaction of
paragraph 328-243(1A)(c) by the entity is excluded because the CGT
roll-over for assets of an entity being wound up in a reincorporation is not
listed in the table in subsection 40-340(1). [Schedule 2, Part 3-80, item 16,
subsections 620-30(2) and (3)]
4.67 The effects of the ITAA 1997 applying as if there were roll-over
relief under subsection 40-340(1) include that:
· the balancing adjustment event does not affect the original
body's assessable income or deductions
(subsection 40-345(1));
· the new company can claim depreciation deductions for the
depreciating asset's decline in value on the same basis that
the original body did (subsection 40-345(2)); and
· the new company is treated as if it had carried out any acts
that the original body had carried out in relation to the asset
and the application of Division 45, which concerns the
disposal of leases and leased plant (subsection 40-350(1)).
[Schedule 2, Part 3-80, item 16, subsection 620-30(2) and (note)]
Example 4.9
Continuing on from Example 4.8, Yellow owns a generator purchased
on 1 July 2008 for $40,000 which is used in the business. It is a
depreciating asset which the business is depreciating using the `prime
cost method'. The generator's effective life is 10 years.
In anticipation of winding up, Yellow disposes of the generator to its
new company Orange Ltd on 1 July 2010. The generator's termination
value (that is, the final sale price) is $35,000 and its adjustable value
(that is, the original cost less the decline in value while it was held by
Yellow) is $32,000. This will cause a balancing adjustment to occur
when the generator is disposed of to Orange Ltd requiring Yellow to
adjust its assessable income upwards by $3,000.
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CGT business restructures -- Part 3: Roll-overs for change of incorporation
As Yellow's members chose to use the section 124-525 roll-over to
disregard capital gains and losses on their ownership interests in
Yellow upon reincorporation, the depreciating asset roll-over is
available to Yellow. Under the depreciating asset roll-over, the
balancing adjustment is disregarded and Yellow does not need to
adjust its assessable income.
Orange Ltd will be able to continue to claim depreciation deductions
from the generator using the prime cost method over the next eight
years.
Consequences for trading stock
4.68 The disposal of an item of `trading stock' (as defined by
section 70-10) from the original body to the new company can result in an
amount of assessable income being attributed to the original body upon
disposal of the item.
4.69 For each item of trading stock that the original body disposes of
to the new company because the original body ceases to exist, the original
body is taken to have sold the item, and the company is taken to have
bought the item (dealing with each other at arm's length) for:
· the cost of the item for the original body; or
· if it was trading stock at the start of the income year, the
value of the item at that time.
[Schedule 2, Part 3-80, item 16, subsections 620-40(1) and (2)]
4.70 The disposal of the trading stock by the original body and the
acquisition of it by the new company are taken to have occurred in the
ordinary course of business for the entities. This avoids any doubt as to
the application of the trading stock provisions, especially section 70-90,
which specifies that if an item of trading stock is disposed of outside the
ordinary course of business then the entity that disposed of it will include
the market value of the item in its assessable income. [Schedule 2, Part 3-80,
item 16, subsection 620-40(2)]
4.71 The company is taken to have held the item as trading stock
from the date it bought the item from the original body. [Schedule 2,
Part 3-80, item 16, subsection 620-40(3)]
4.72 This has the effect of giving the original body a nil profit and a
nil loss for the income year it ceased to hold the item of trading stock,
giving it a tax neutral outcome for disposing of the item to the company.
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
4.73 For the company, this treatment means that it is taken to have
acquired the trading stock held by the original body for the same value
that the original body was taken to have received for the trading stock.
This provides the company with the same tax outcome for the trading
stock (assessable income or deduction depending on the closing value of
the trading stock) as would have applied if the original body had
continued to exist for the relevant income year.
Example 4.10
Continuing on from Example 4.8, Yellow holds widgets that are
trading stock in its business. Yellow holds 25 widgets just before it is
wound up, and of these widgets:
· ten widgets were held as trading stock at the beginning of the
current income year, with the value of $100 each; and
· fifteen widgets were purchased during the current income year for
$90 each.
Just before Yellow ceases to exist, it disposes of the widgets to
Orange Ltd.
As Yellow's members chose to use the section 124-525 roll-over to
disregard capital gains and losses on their ownership interests in
Yellow upon reincorporation, the trading stock roll-over automatically
applies to its trading stock.
This means that Yellow is taken to have sold the 10 widgets it held as
trading stock at the beginning of the current income year at $100 each
to Orange Ltd and to have sold the 15 widgets it acquired during the
current income year at $90 each. This results in Yellow having nil
profit and nil loss on its trading stock.
Orange Ltd is taken to have acquired 10 widgets at $100 each and
15 widgets at $90 each. This effectively passes the tax attributes of the
trading stock held by Yellow to the trading stock now held by
Orange Ltd.
Consequences for revenue assets
4.74 A revenue asset is defined in section 977-50 as an asset for
which a profit or loss on disposal, on ceasing to own the asset, or other
realisation is taken into account in calculating assessable income other
than as a capital gain or loss and is neither trading stock nor a depreciating
asset. Disposals of revenue assets from the original body to the new
company could result in the body realising a profit or loss.
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CGT business restructures -- Part 3: Roll-overs for change of incorporation
4.75 The roll-over for revenue assets applies if a CGT asset that the
original body disposes of to the new company, because the original body
ceases to exist, is a revenue asset just before the time of the disposal.
[Schedule 2, Part 3-80, item 16, subsection 620-50(1)]
4.76 The original body is taken to have disposed of the revenue asset
to the new company for an amount that would result in the original body
not making a profit or loss because of the disposal. This means that there
is no effect on the original body's taxable income. [Schedule 2, Part 3-80,
item 16, subsection 620-50(2)]
4.77 The new company is taken to have paid the original body the
amount to acquire the asset that resulted in that body not making a profit
or loss because of the disposal of the revenue asset. This amount is used
by the new company to calculate future profits and losses, allowing it to
be in same tax position as the original body in regards to the revenue asset
at the time of the disposal. [Schedule 2, Part 3-80, item 16, subsection 620-50(3)]
Example 4.11
Continuing on from Example 4.8, Yellow currently has a revenue
asset. The market value of the revenue asset is $45,000 and its cost
was $50,000. This means there is a $5,000 unrealised loss on the asset.
When Yellow disposes of the asset to Orange Ltd in anticipation of it
ceasing to exist, it is taken to have sold the asset to Orange Ltd for
$50,000, resulting in Yellow not making a profit or loss because of the
disposal.
Orange Ltd is taken to have acquired the asset for $50,000, which rolls
over the unrealised loss on the asset to Orange Ltd, putting it in the
same position as Yellow just before the disposal.
4.78 The roll-over for revenue assets also applies to realisations of
revenue assets that involve ceasing to own the asset or realising it in
another way besides a disposal. For the purpose of the revenue asset
roll-over, such realisations are treated as disposals and accordingly benefit
from the same treatment as described in paragraphs 4.74 to 4.77.
[Schedule 2, Part 3-80, item 16, subsections 620-50(4) and (5)]
Application and transitional provisions
4.79 The CGT roll-over for interests in a body that change
incorporation applies to CGT events happening after 7.30 pm (by legal
time in the Australian Capital Territory) on 11 May 2010. [Schedule 2,
item 24, section 124-510 of the Income Tax (Transitional Provisions) Act 1997]
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
4.80 The roll-over for the CGT, depreciating, revenue and trading
stock assets of a body that must wind up and form a new company in
order to change its incorporation applies in relation to the cessation of
existence of bodies corporate occurring after 7.30 pm (by legal time in the
Australian Capital Territory) on 11 May 2010. [Schedule 2, Part 3-80, item 25,
section 620-10 of the Income Tax (Transitional Provisions) Act 1997]
4.81 The dates of effect of these roll-overs are retrospective so that
that any transactions occurring since the time of announcement are
covered by the amendments so that taxpayers can benefit from the
measure. The amendments are beneficial to taxpayers.
Consequential amendments
4.82 A new note is inserted at the end of subsection 40-340(1) to
indicate the existence of the depreciating asset roll-over for an original
body that is being wound up and replaced by a new company incorporated
under a different law. [Schedule 2, items 17 and 18]
4.83 Also, a note is inserted after subsection 70-80(1) to indicate that
an incorporated body is treated as disposing of an item of its trading stock
in the ordinary course of business where the body ceases to exist and
disposes of the asset to its new company. [Schedule 2, item 19]
4.84 There are also amendments to the finding tables in
Subdivision 112-B, which indicate the location of certain cost base
modifications made outside of Parts 3-1 and 3-3. [Schedule 2, items 20 to 23,
sections 112-53AB, 112-97 (at the end of the table), 112-115 (the cell at item 11 in the
table, the column headed `For the rules about this roll-over' and 112-150 (at the end of
the table)]
52
Chapter 5
GST financial supply provisions
Outline of chapter
5.1 Schedule 3 to this Bill amends the A New Tax System (Goods
and Services Tax) Act 1999 (GST Act) to implement a number of
recommendations agreed to by the Government arising out of Treasury's
Review of the GST financial supply provisions.
5.2 All legislative references in this chapter are to the GST Act
unless otherwise stated.
Context of amendments
5.3 These measures implement three of the recommendations
arising out of Treasury's Review of the GST financial supply provisions.
The remaining recommendations will be implemented through
amendments to the A New Tax System (Goods and Services Tax)
Regulations 1999.
5.4 Most financial supplies are input taxed and entities making
financial supplies generally cannot claim input tax credits for related
acquisitions.
5.5 Input taxation of financial supplies under the goods and services
tax (GST) is inefficient and reduces competition. Division 70 provides
access to reduced input tax credits for a defined range of acquisitions
which are listed in the GST regulations. The availability of reduced input
tax credits is aimed at mitigating some of the inefficiency caused by input
taxation.
5.6 In addition, to reduce compliance costs for small businesses and
businesses that only make limited financial supplies, the GST law
contains a number of exclusions to the input taxation of financial supplies.
These include:
· the financial acquisitions threshold, which allows businesses,
whose notional entitlements to input tax credits for financial
acquisitions do not exceed a de minimis threshold, to access
input tax credits (Division 189);
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
· the borrowing concession, which excludes borrowing-related
acquisitions from the financial acquisitions threshold
(section 189-15); and
· treating borrowing-related acquisitions as not relating to
making input taxed supplies provided the borrowing itself
does not relate to making input taxed supplies
(subsection 11-15(5)).
Financial acquisitions threshold
5.7 In order to keep businesses that primarily make taxable or
GST-free supplies out of the financial supply regime, the GST Act allows
businesses that only make a small number of low value financial supplies
to claim input tax credits for acquisitions relating to the making of
financial supplies where the business has not exceeded the financial
acquisitions threshold.
5.8 Division 189 sets out the conditions in which an entity will
exceed the financial acquisitions threshold. The financial acquisitions
threshold is a two-limb test. For calculation purposes, the test assumes
that there is a notional input tax credit available for financial acquisitions.
An entity will exceed the financial acquisitions threshold if the dollar
value of notional input tax credits for current or future financial
acquisitions made by the entity exceeds either:
· $50,000 in the relevant period (first limb); or
· ten per cent of the total amount of input tax credits the entity
could claim for all its purchases (including notional input tax
credits for financial acquisitions) during the relevant period
(second limb).
5.9 In applying the financial acquisitions threshold, it is necessary to
determine the entity's current financial acquisitions and future financial
acquisitions for the relevant periods. The relevant period for current
financial acquisitions is the current month plus the previous 11 months.
The relevant period for future financial acquisitions is the current month
plus the following 11 months.
54
GST financial supply provisions
Diagram 5.1: The relevant time periods for testing against the
financial acquisitions threshold
current
month
12 months
current financial acquisitions
12 months
future financial acquisitions
Borrowings
5.10 Subsection 11-15(5) reinstates an entity's entitlement for
input tax credits for acquisitions that have been denied through
paragraph 11-15(2)(a), to the extent that the acquisition relates to making
a financial supply consisting of a borrowing, and the borrowing relates to
the entity making supplies that are not input taxed.
5.11 This means that businesses that borrow funds to make supplies
that are not input taxed are able to claim input tax credits for acquisitions
that relate to the borrowing.
5.12 Borrowing is defined in the GST Act by reference to
section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997), as
any form of borrowing, whether secured or unsecured, and includes the
raising of funds by the issue of a bond, debenture, discounted security or
other document evidencing indebtedness.
5.13 Currently, Australian authorised deposit-taking institutions
(ADIs) make financial supplies consisting of a borrowing through the
provision of deposit accounts. These entities are able to claim input tax
credits for acquisitions to the extent the acquisitions relate to the financial
supply consisting of a borrowing and the borrowing relates to the ADIs
making supplies that are not input taxed.
Hire purchase
5.14 Under a hire purchase agreement, the entity:
· purchases goods through instalment payments;
· uses the goods while paying for them; and
· does not own the goods until the entity has paid the final
instalment.
5.15 `Hire purchase agreement' is defined in section 995-1 of the
ITAA 1997.
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
5.16 Under the GST law, a sale and purchase of goods made under a
hire purchase agreement has the same GST treatment as a sale and
purchase of goods under an ordinary sale agreement.
5.17 Therefore, under the existing law, the attribution of GST
liabilities and input tax credits for the taxable component of a hire
purchase agreement depends on whether the taxpayer accounts on a cash
or non-cash basis.
5.18 Taxpayers who account on a cash basis attribute their GST
liabilities and input tax credits when they make or receive each instalment
payment.
5.19 On the other hand, taxpayers who account on a non-cash basis
account for their GST liabilities upfront when the first payment is
received or an invoice is issued (whichever is earlier). Similarly, they are
able to claim their input tax credits upfront at the earlier of when the first
payment is made (if they hold a valid tax invoice for the acquisition) or
when the tax invoice is obtained.
Summary of new law
5.20 This Schedule increases the first limb of the financial acquisition
threshold from $50,000 to $150,000, excludes financial supplies
consisting of a borrowing that are made through the provision of a deposit
account by an Australian ADI from the current concession for borrowings,
and allows taxpayers who account on a cash basis to treat an acquisition
made under a hire purchase agreement as though they do not account on a
cash basis.
Comparison of key features of new law and current law
New law Current law
An entity will exceed the financial An entity will exceed the financial
acquisitions threshold if the dollar acquisitions threshold if the dollar
value of notional input tax credits for value of notional input tax credits for
current or future financial current or future financial
acquisitions made by the entity acquisitions made by the entity
exceeds $150,000 in the relevant exceeds $50,000 in the relevant
period. period.
56
GST financial supply provisions
New law Current law
Australian ADIs who make financial Australian ADIs who make financial
supplies consisting of a borrowing supplies consisting of a borrowing
through the provision of deposit through the provision of deposit
accounts are not able to claim input accounts are able to claim input tax
tax credits for acquisitions that relate credits for acquisitions to the extent
to the financial supply consisting of a that the acquisitions relate to the
borrowing, even where the borrowing financial supply consisting of a
relates to making supplies that are not borrowing and the borrowing relates
input taxed. to making supplies that are not input
taxed.
Input tax credits on acquisitions made Input tax credits on acquisitions made
under a hire purchase agreement are under a hire purchase agreement are
available to cash basis taxpayers as if not available to cash basis taxpayers
they had accounted on a non-cash upfront and are only available when
basis for that transaction. This means each instalment payment is made.
that input tax credits are available
upfront.
Supplies or acquisitions of goods or The attribution rules contained in
credit made under a hire purchase Division 156 provide that supplies or
agreement are not supplies or acquisitions made on a progressive or
acquisitions made on a progressive or periodic basis are to be treated as if
periodic basis. each progressive or periodic
component of the supply or
acquisition is a separate supply or
acquisition.
Detailed explanation of new law
Financial acquisitions threshold
5.21 Part 1 amends Division 189 to increase the first limb of the
financial acquisitions threshold from $50,000 to $150,000.
5.22 This means that from 1 July 2012, an entity is able to claim
input tax credits for acquisitions that relate to the making of financial
supplies if the dollar value of notional input tax credits for current or
future financial acquisitions made by the entity does not exceed $150,000
in the relevant period. [Schedule 3, item 1, paragraphs 189-5(1)(a) and (2)(a);
item 2, paragraphs 189-10(1)(a) and (2)(a)]
5.23 This new threshold means that an entity can now make up to
$1,650,000 of financial acquisitions in the relevant period before
exceeding this limb of the financial acquisitions threshold. This compares
with up to $550,000 of similar acquisitions prior to 1 July 2012.
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
5.24 The relevant periods in which financial acquisitions made
(current financial acquisitions), or anticipated to be made (future financial
acquisitions), by the entity remain the same.
Example 5.1
Alpha Co provides financial services to its clients. In the 12 months
leading up to and including July 2012, Alpha Co has $80,000 worth of
notional input tax credits (in respect of $880,000 of current financial
acquisitions). It predicts that for July 2012 and the subsequent
11 months (future financial acquisitions), it will have $85,000 worth of
notional input tax credits. Alpha Co satisfies the first limb of the
financial acquisitions threshold at the time of undertaking the test in
July 2012, as neither its entitlement to notional input tax credits for
current or future financial acquisitions exceed $150,000.
5.25 The 10 per cent threshold (second limb of the financial
acquisitions threshold) remains unchanged. If an entity's notional
input tax credits for its current or future financial acquisitions exceed
10 per cent of the total amount of notional input tax credits for all of its
purchases (including financial acquisitions) during the relevant period,
then the financial acquisitions threshold will have been breached even if
the dollar value of input tax credits does not exceed $150,000.
Example 5.2
Assuming the same facts as in Example 5.1, if the total amount of
notional input tax credits Alpha Co could claim for all of its purchases
is $150,000, then Alpha Co would exceed the financial acquisitions
threshold as the amount of notional input tax credits for its current or
future financial acquisitions is more than 10 per cent of the total
amount of input tax credits (including notional input tax credits) for all
of its purchases.
5.26 The amendment to the threshold applies when working out
whether the financial acquisitions threshold has been exceeded during
July 2012 or later months. When working out whether the threshold has
been exceeded in June 2012 and prior months, the old threshold of
$50,000 applies. [Schedule 3, item 3]
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GST financial supply provisions
Diagram 5.2: Applicable thresholds at June 2012 and July 2012
12 months
current financial acquisitions
cannot exceed $50,000 12 months
future financial acquisitions
cannot exceed $50,000
current month
May June July August
current month
12 months
current financial acquisitions
cannot exceed $150,000 12 months
future financial acquisitions
cannot exceed $150,000
Example 5.3
On 15 June 2012, Beta Co calculates its notional input tax credit
entitlement for its current financial acquisitions to be $45,000 and its
notional input tax credit entitlement for its future financial acquisitions
to be $60,000. As Beta Co's notional input tax credit entitlement for
its future financial acquisitions exceed the threshold of $50,000, it will
have exceeded the financial acquisitions threshold and will be denied
input tax credits for acquisitions that relate to the making of financial
supplies.
On 15 July 2012, Beta Co tests its current and future input tax credit
entitlement for its financial acquisitions again. Its notional input tax
credit entitlement for its current financial acquisitions is $48,000 and
for its future financial acquisitions is $55,000. As neither Beta Co's
current nor future input tax credit entitlement for its financial
acquisitions exceed the new threshold of $150,000, it satisfies the first
limb of the financial acquisitions threshold.
Borrowings
5.27 Part 2 amends section 11-15 to restrict the financial supply
consisting of a borrowing referred to in paragraph 11-15(5)(a) by
excluding borrowings made through a deposit account.
5.28 This means that input tax credits denied under
paragraph 11-15(2)(a) for acquisitions that relate to the Australian
ADI making a financial supply consisting of a borrowing through a
deposit account are not re-instated under subsection 11-15(5).
[Schedule 3, item 4, paragraph 11-15(5)(a)]
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
Example 5.4
RDC Bank makes deposit accounts available to its customers. Rob has
an account with RDC Bank and deposits $50,000 into the account on
1 August 2012. RDC Bank makes a financial supply consisting of a
borrowing through the provision of the deposit account to Rob. It
therefore does not satisfy paragraph 11-15(5)(a) and is not able to
claim input tax credits denied under paragraph 11-15(2)(a) for
acquisitions made on or after 1 July 2012, that relate to it providing the
account to Rob.
5.29 Deposit account is defined to mean an account that is made
available by an Australian ADI in the course of carrying on a banking
business, where amounts credited to the account represent money taken by
the ADI on deposit, other than as part-payment for identified goods or
services. `Australian ADI' is defined in the Corporations Act 2001 and
`banking business' is defined in the Banking Act 1959. [Schedule 3, item 5,
definition of `deposit account' in section 195-1]
5.30 The exclusion only applies to deposit accounts made available
by Australian ADIs and does not apply where a debenture (as defined in
section 9 of the Corporations Act 2001) issued by the ADI relates to any
of the amounts credited to the account. [Schedule 3, item 5, definition of `deposit
account' in section 195-1]
5.31 These amendments apply in relation to acquisitions made on or
after 1 July 2012. [Schedule 3, item 6]
Hire purchase agreements
5.32 Part 3 inserts Division 158 which establishes a special rule for
taxpayers who account on a cash basis to attribute their input tax credits
on acquisitions made under hire purchase arrangements as though they do
not account on a cash basis. [Schedule 3, item 10, Division 158]
5.33 This means that taxpayers who account on a cash basis are now
able to claim input tax credits for acquisitions they make under a hire
purchase agreement upfront instead of waiting until each instalment
payment is made. This removes the current distortion that exists between
hire purchase and other forms of financing for cash-based taxpayers.
5.34 The special rules relating to acquisitions made under hire
purchase agreements also apply to representatives of incapacitated entities
that are entitled to input tax credits or are required to make adjustments
under subsection 58-10(1). [Schedule 3, item 10, paragraph 158-5(2)(b)]
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GST financial supply provisions
5.35 The non-cash basis treatment also applies if there are other GST
consequences that relate to the relevant acquisitions. For example, the
entity will be treated as accounting on a non-cash basis when determining
if a bad debt adjustment arises under Division 21 for the relevant
acquisitions.
5.36 The attribution rules contained in Division 156 currently treat
supplies and acquisitions made on a progressive or periodic basis as if
each progressive or periodic component of the supply or acquisition is a
separate supply or acquisition.
5.37 In order to ensure that GST and input tax credits are attributable
upfront for supplies and acquisitions of credit made under a hire purchase
agreement, section 156-23 is inserted to provide that supplies or
acquisitions of goods or credit under hire purchase agreements are not
treated as supplies or acquisitions made on a progressive or periodic basis.
[Schedule 3, item 9, section 156-23]
5.38 The section clarifies that the existing treatment of goods
supplied and acquired under a hire purchase agreement as not being made
on a progressive or periodic basis is not changed by these amendments. It
further ensures that the credit component supplied and acquired under a
hire purchase agreement is also not treated as a supply made on a
progressive or periodic basis.
5.39 Division 158 will override the operation of the following
provisions in respect to acquisitions made under a hire purchase
agreement where an entity accounts on a cash basis:
· paragraph 19-10(2)(c) (Adjustment events);
· subsection 21-15(2) (Bad debts written off (creditable
acquisitions));
· subsection 29-10(2) (Attributing the input tax credits for your
creditable acquisitions);
· subsection 29-20(2) (Attributing your adjustments);
· subsection 66-15(2) (Attributing input tax credits for
creditable acquisitions of second-hand goods); and
· subsections 90-35(1) and (2) (Amalgamating companies
accounting on a cash basis).
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
5.40 The following provisions may apply in respect to acquisitions
made under a hire purchase agreement as a result of Division 158, even
though the entity accounts on a cash basis in respect to other transactions:
· section 19-10 (Adjustment events);
· subsection 21-15(1) (Bad debts written off (creditable
acquisitions);
· subsection 29-10(1) (Attributing the input tax credits for your
creditable acquisitions);
· subsection 29-20(1) (Attributing your adjustments);
· subsection 66-15(1) (Attributing input tax credits for
creditable acquisitions of second-hand goods); and
· section 90-25 (Entitlement after amalgamation to input tax
credits for amalgamating company's acquisitions).
5.41 Hire purchase agreements are also added to the list of special
rules relating to attribution rules and the list of special rules relating to
accounting on a cash basis. [Schedule 3, items 7 and 8, sections 29-39 and 29-69]
5.42 These amendments apply in relation to hire purchase agreements
entered into on or after 1 July 2012. [Schedule 3, item 11]
Example 5.5
Melissa owns a small fashion business with a turnover of $1.5 million.
The business is registered for GST and accounts on a cash basis. On
15 April 2012, Melissa enters into a hire purchase agreement (where
the credit component is not disclosed) with Patrick to purchase a new
sewing machine for her business for $3,300 and pays her first
instalment of $110. As Melissa accounts for GST on a cash basis, her
input tax credit entitlement is limited to $10 (1/11 of $110) for the first
instalment, in the period she actually pays the instalment. Had Melissa
been accounting for GST on a non-cash basis she would have been
able to claim an input tax credit of $300 (1/11 of $3,300) in the tax
period in which she first holds a tax invoice for acquisition.
After 1 July 2012, Melissa must continue to account for input tax
credits on the purchase of the sewing machine when each instalment
payment is made. The amendments do not apply because she has
entered into the hire purchase agreement before 1 July 2012.
On 20 July 2012, Melissa enters into another hire purchase agreement
(with an undisclosed credit component) with Patrick to purchase a
delivery vehicle for her business for $55,000. As the agreement was
62
GST financial supply provisions
entered into after 1 July 2012, Melissa can claim a full input tax credit
of $5,000 (1/11 of $55,000) for the tax period in which she first holds a
tax invoice, irrespective of whether Melissa accounts for GST on a
cash or non-cash basis.
Application and transitional provisions
5.43 The amendments in Part 1 apply when working out whether an
entity has exceeded the financial acquisitions threshold for months
commencing on or after 1 July 2012.
5.44 The amendments in Part 2 apply in relation to acquisitions made
on or after 1 July 2012.
5.45 The amendments in Part 3 apply in relation to hire purchase
agreements entered into on or after 1 July 2012.
63
Chapter 6
GST treatment of new residential premises
Outline of chapter
6.1 Schedule 4 to this Bill amends the A New Tax System (Goods
and Services Tax) Act 1999 (GST Act) to ensure that sales or long-term
leases of new residential premises by a registered entity are taxable
supplies and that sales or long-term leases of residential premises (other
than new residential premises) are input taxed supplies.
6.2 These amendments will also ensure that:
· first, the supply, by way of assignment of a long-term
leasehold interest, of newly constructed residential premises
is a taxable supply of new residential premises; and
· second, the reconfiguration of the title with respect to
existing residential premises (other than new residential
premises), of itself, will not result in the subsequent supply of
those residential premises being a taxable supply of new
residential premises.
6.3 These proposed amendments also clarify that premises that
become new residential premises because of substantial renovations or
because they have been built to replace demolished premises, cease to be
new residential premises once they are subsequently sold or supplied by
way of long-term lease as residential premises.
6.4 Except for item 2 in this Schedule (see paragraph 6.3), the
provisions take effect from 27 January 2011 (the date of the
Government's announcement). Item 2 of this Schedule (referred to in
paragraph 6.3) applies in relation to supplies of residential premises on or
after the day this Schedule commences.
6.5 All legislative references in this chapter are to the GST Act
unless otherwise stated.
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
Context of amendments
6.6 Under section 40-65, the sale of residential premises to be used
predominantly for residential accommodation is input taxed to the extent
that the premises are not commercial residential premises or new
residential premises.
6.7 Section 40-70 provides that a supply by way of long-term lease
of residential premises to be used predominantly for residential
accommodation is also input taxed to the extent that the premises are not
commercial residential premises or new residential premises.
6.8 Section 40-75 provides the meaning of `new residential
premises'. Under this section, `new residential premises' are residential
premises:
· that have not previously been sold as residential premises, or
have not previously been the subject of a long-term lease; or
· that have been created by `substantial' renovations of a
building; or
· that have been built to replace demolished premises on the
same land, or which contain a building that has been built for
that purpose.
6.9 The Full Federal Court decision in Commissioner of Taxation v
Gloxinia Investments (Trustee) [2010] FCAFC 46 (Gloxinia), handed
down on 24 May 2010, held that a developer's sales of newly constructed
residential premises, constructed under a particular arrangement with a
land owner (sometimes referred to as a `development lease' arrangement),
are input taxed supplies of residential premises. This outcome is contrary
to the policy intent to tax the sale of newly constructed residential
premises by GST registered entities who are selling the premises as part of
their enterprise activities.
6.10 The Federal Court's decision in Gloxinia also highlights that the
current law may not achieve the stated policy intent with respect to the
goods and services tax (GST) treatment of residential premises in other
circumstances. In those parts of Australia where land tenure is held by
way of long-term lease, such as in the Australian Capital Territory (ACT),
the process of building, `strata titling' and selling what would otherwise
be new residential premises subject to GST may result in those sales being
treated as input taxed and not subject to GST.
6.11 Although not specifically addressed by the Federal Court in
Gloxinia, the reasons for the Court's decision may also be considered to
66
GST treatment of new residential premises
raise doubt as to whether the current law achieves the desired policy intent
where there is an alteration to property title arrangements for existing
residential premises (other than new residential premises) held by way of
freehold title. For example, the decision may be considered to suggest
that the subdivision of an existing block of flats into strata title units, or
the excising of a vacant lot from land comprising existing residential
premises, may result in the premises becoming new residential premises
and their subsequent supply being subject to GST rather than being input
taxed.
6.12 These outcomes are contrary to the general policy intent in
relation to the taxation of property under the GST Act.
6.13 The Government has therefore decided to amend the GST law
with effect from 27 January 2011 (the date of the Government's
announcement) to ensure that it achieves the intended policy outcome for
the GST treatment of residential premises. The amendments made by this
Schedule, except for item 2, apply in relation to supplies on or after
27 January 2011, subject to certain exceptions contained in items 12 and
13.
6.14 Retrospective amendment of the GST law is considered
appropriate as it will provide certainty to taxpayers with respect to the
GST treatment of supplies of affected premises. It is also considered that
retrospective amendment of the GST law will limit any future potential
competitive advantage that may otherwise arise for those taxpayers that
construct new residential premises under relevant arrangements and
which, under the current law, may result in reduced GST liabilities.
6.15 These amendments confirm the interpretative approach applied
by the Australian Taxation Office (ATO) and followed by taxpayers prior
to the decision in relation to the GST treatment of newly constructed
residential premises that are subdivided or strata-titled prior to their sale
or supply by long term lease.
6.16 Similarly, these amendments confirm and remove any doubt
with respect to the interpretative approach applied by the ATO and
followed by taxpayers prior to the decision with respect to changes to the
configuration of property title relating to existing residential premises
(other than new residential premises). That is, the amendments confirm
and remove any doubt that the subdivision or strata titling of residential
premises (other than new residential premises) does not result in the
creation of new residential premises.
6.17 A transitional provision applies to ensure that taxpayers, who
have entered into specified arrangements, on the basis of the current law
67
Tax Laws Amendment (2011 Measures No. 9) Bill 2011
as held to apply by the Federal Court in Gloxinia, will not be
disadvantaged.
Summary of new law
6.18 This Schedule amends subsection 40-75(1) to remove any doubt
that premises that become new residential premises because of substantial
renovations or because they have been built to replace demolished
premises, cease to be new residential premises once they are sold or
supplied by way of long-term lease as residential premises.
6.19 Schedule 4 inserts new subsection 40-75(2AA) into the GST Act
to clarify and remove any doubt that the subdivision of existing residential
premises that are not new residential premises, by itself, does not result in
the subdivided premises being new residential premises.
6.20 This Schedule inserts new subsection 40-75(2B) into the
GST Act to provide that a `wholesale supply' of residential premises is
disregarded in certain circumstances for the purposes of determining
whether a subsequent supply of the premises is a supply of new residential
premises.
6.21 This Schedule also inserts new subsection 40-75(2C) into the
GST Act to provide that any supply of residential premises by a
government body as a result of the lodgment of a property subdivision
plan, for example, the grant of strata-lot leases in relation to residential
premises, is disregarded for the purposes of determining whether a
subsequent supply of the premises is a supply of new residential premises.
Comparison of key features of new law and current law
New law Current law
Premises that become new residential New residential premises that have
premises because of substantial been created through substantial
renovations or because they have renovations or built to replace
been built to replace demolished existing premises are no longer new
premises, cease to be new residential residential premises after they are
premises once they are sold or subsequently sold or supplied by way
supplied by way of long-term lease. of a long-term lease. However, this
outcome may not be readily apparent
or clear from the wording of the
current law.
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GST treatment of new residential premises
New law Current law
The subdivision of existing The subdivision or strata titling of
residential premises that are not new residential premises (other than new
residential premises does not result in residential premises) does not result
the subdivided premises becoming in the creation of new residential
new residential premises. premises. However, the decision in
Gloxinia may raise doubts as to the
GST consequences arising from the
subdivision or strata titling of
residential premises (other than new
residential premises).
The `wholesale supply' of residential The supply of newly constructed
premises under certain arrangements residential premises that have been
is disregarded in determining whether constructed under certain
the subsequent supply of the premises arrangements is input taxed and the
is a supply of new residential earlier `wholesale supply' is a taxable
premises. The earlier `wholesale supply of new residential premises.
supply' is also a supply of new
residential premises which will be a
taxable supply if made by a GST
registered entity.
The strata titling and grant of a The strata titling and grant of a
strata-lot lease over newly strata-lot lease over newly
constructed residential premises does constructed residential premises
not of itself cause these premises to causes these premises to cease to be
cease to be new residential premises new residential premises and not
and not subject to GST when sold to subject to GST when sold to home
home buyers and investors. buyers and investors.
Detailed explanation of new law
6.22 These amendments add words and notes to subsection 40-75(1)
to clarify that premises that become new residential premises because of
substantial renovations or because they have been built to replace
demolished premises, cease to be new residential premises once they are
sold or supplied by way of long-term lease as residential premises.
[Schedule 4, item 2, subsection 40-75(1)]
6.23 These amendments also provide that residential premises are not
new residential premises if they are created from residential premises that
became the subject of a `property subdivision plan' and the residential
premises were not new residential premises immediately before they
became the subject of that plan [Schedule 4, item 5, subsection 40-75(2AA)]. The
term property subdivision plan has been defined to mean a plan for the
division of real property that is registered (however described) under an
Australian law. The note to the definition explains that strata title plans
69
Tax Laws Amendment (2011 Measures No. 9) Bill 2011
and plans to subdivide land are examples of a `property subdivision plan'.
[Schedule 4, item 10, definition of `property subdivision plan' in section 195-1]
6.24 The intention of new subsection 40-75(2AA) is to clarify that
the subdivision of existing residential premises that are not new residential
premises does not, by itself, result in the subdivided premises being new
residential premises. Subsection 40-75(2AA) will not prevent premises
from being treated as new residential premises for the purposes of
paragraph 40-75(1)(b) or (c) should they subsequently be substantially
renovated or demolished and replaced. The premises referred to in
paragraph (2AA)(a) include associated land as well as buildings.
6.25 These amendments also provide that a `wholesale supply' of
residential premises is disregarded in certain circumstances for the
purposes of determining whether a subsequent supply of residential
premises is a supply of new residential premises. [Schedule 4, item 8,
subsection 40-75(2B)]
6.26 The intention of new subsection 40-75(2B) is to ensure that
certain sales of newly constructed residential premises by a developer to
home buyers and investors will be taxable supplies of new residential
premises even though there may have been an earlier `wholesale supply'
of the premises. The earlier supply is disregarded for the purposes of
determining whether or not residential premises are new residential
premises if the residential premises have been constructed pursuant to a
particular arrangement (including an agreement). The particular
arrangement being an arrangement between a developer or builder and a
land holder, whereby the developer or builder (or an associate of the
developer or builder) becomes entitled to the freehold or long-term
leasehold title in the premises conditional on specified building or
renovation work being undertaken by the developer or builder.
6.27 These amendments are intended to ensure that GST is payable
on the full value added to premises by developers and builders.
6.28 The earlier `wholesale supply' is also a supply of new residential
premises. The consideration for the `wholesale supply' of the residential
premises includes the GST-inclusive market value of the specified
building or renovation work undertaken on the land by the developer or
builder prior to the transfer of the premises to the developer or builder.
This is consistent with the Federal Court's approach in Gloxinia where it
was held that the Council supplied the completed residential premises to
the developer, and not just vacant land, when the title to each of the
individual residential apartments was granted to the developer upon their
completion of the development and construction of the residential
premises.
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GST treatment of new residential premises
6.29 These amendments also provide for a regulation-making power
to allow for future arrangements which may result in similar unintended
policy outcomes to be included in and addressed by new
subsection 40-75(2B) [Schedule 4, item 8, subparagraph 40-75(2B)(c)(ii)]. Any
proposed regulations would be subject to public consultation in
accordance with the Government's tax design policies.
6.30 These amendments further provide that the supply of premises
by a government body as a direct result of the lodgment of a property
subdivision plan, for example, the grant of strata-lot leases in relation to
residential premises, is disregarded for the purposes of determining
whether a supply of premises is a supply of new residential premises.
[Schedule 4, item 8, subsection 40-75(2C)]
6.31 New subsection 40-75(2C) is intended to deal with the issue of
strata titling of a long-term leasehold interest in newly constructed
residential premises (which is particularly relevant in those States and
Territories where land tenure is held by way of long-term leasehold, for
example, the ACT). Specifically the new subsection is intended to ensure
that the granting of individual strata lot leases over newly constructed
residential premises upon registration of a property subdivision plan is
not, by itself, sufficient to cause those premises to cease to be new
residential premises and to be input taxed when they are subsequently sold
or supplied by way of long-term lease. The supply that this new
subsection captures is limited to the supply that a government body
makes, for example, the grant of strata lot leases, as a direct result of the
lodgment of a strata plan by an entity.
6.32 As noted in paragraph 6.26, the consideration for a `wholesale
supply' of residential premises under an arrangement of a kind described
in new subsection 40-75(2B) includes the GST inclusive market value of
the development and building works undertaken on the land by the
developer or builder prior to the `wholesale supply' being made. The
developer also makes a supply of those development and building works
to the land owner. The attribution rules and tax invoice requirements in
Division 29 apply in relation to these respective supplies.
Example 6.1
On 1 February 2011, Government X enters into a deed with
DeveloperCo for the development and sale of improved land that
Government X held at 1 July 2000. The deed between Government X
and DeveloperCo provides for the grant of a development lease for a
period of three years. DeveloperCo is required to undertake certain
development works on the land, including the construction of
residential apartments, subject to the terms of the development lease.
The deed between Government X and DeveloperCo provides that upon
completion of the development works, Government X will transfer
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
freehold title to the land including the development works to
DeveloperCo in return for payment of $22 million.
The GST-inclusive market value of the works undertaken on the land
by the developer is $220 million.
The value of the land as at 1 July 2000 was $11 million.
On 1 February 2014, the development works are completed and, in
accordance with the terms of the deed, Government X transfers
freehold title to the premises to DeveloperCo in return for a monetary
payment of $22 million from DeveloperCo to Government X.
GST outcomes under the new law -- margin scheme is applied
(i) The supply of development services by DeveloperCo and the
acquisition of those development services by Government X.
In undertaking the development works on the land, under the terms of
the deed and the development lease, DeveloperCo makes a taxable
supply of those development works to Government X.
The consideration for the development works undertaken by
DeveloperCo is the GST-inclusive market value of the freehold interest
in the development transferred to DeveloperCo less the $22 million
payment that DeveloperCo made in return for that transfer. In this
case, it is accepted this amount is equivalent to the GST inclusive
market value of the development works undertaken by the developer,
that is, $220 million.
On the basis set out above, DeveloperCo's GST liability for its supply
of the development works to Government X would be:
$220 / 11 = $20m.
Government X is entitled to an input tax credit for its acquisition of the
development works from DeveloperCo, equivalent to the GST payable
on the supply of the development works by DeveloperCo, that is,
$20 million.
DeveloperCo is entitled to input tax credits on the taxable supplies it
acquires to undertake the development works.
(ii) The wholesale supply of the premises to DeveloperCo on
1 February 2014.
The transfer of the freehold title to the premises to DeveloperCo
on 1 February 2014 is a wholesale supply to which proposed
subsection 40-75(2B) will apply.
This wholesale supply of the premises is a taxable supply.
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GST treatment of new residential premises
The consideration for the wholesale supply of the premises is the
$22 million paid by the developer plus the GST-inclusive market value
($220 million) of the development works that the developer undertook
on the land under the terms of the deed and the development lease.
Therefore the total consideration for Government X's wholesale supply
of the premises is $242 million.
Government X's GST liability on its wholesale supply of the premises
under the margin scheme is:
$242m - $11m / 11 = $21m.
(iii) The developer's acquisition of the completed development and
subsequent sale of residential premises to home buyers and investors.
The developer will not be entitled to an input tax credit for its
acquisition of the completed development from Government X because
it was supplied to the developer under the margin scheme
(section 75-20).
The developer's sale of the residential apartments constructed under
the development lease arrangement will be taxable supplies of new
residential premises.
The developer will be liable for GST on its supplies of the residential
apartments to home buyers and investors.
Where the margin scheme is applied, the GST liability applicable to
the sale of each individual apartment will be equal to:
(the sale price of the apartment -- the applicable proportion of the
$242m consideration that the developer provided for the entire
development) / 11.
GST outcomes under the new law -- the margin scheme is not
applied
The GST outcomes will be the same if the margin scheme is not
applied, except that:
· Government X's GST liability on its wholesale supply of the
completed premises to DeveloperCo will be calculated on the entire
consideration received:
$242m / 11 = $22m
· DeveloperCo will be entitled to an input tax credit of $22 million
for its acquisition of the completed premises from Government X.
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
· DeveloperCo's GST liability on the sale of individual residential
apartments to home buyers and investors will be calculated as 1/11
of the entire sale price for each apartment.
Application and transitional provisions
6.33 The amendments made by this Schedule (other than item 2)
apply in relation to supplies of residential premises on or after
27 January 2011. Retrospective application of the amendments is
considered necessary for the reasons outlined in paragraphs 6.14 to 6.16.
However, some sales of residential premises after 27 January 2011 will
not be subject to these amendments if the conditions contained in items 12
and 13 are satisfied. [Schedule 4, subitems 11(1) and (2)]
6.34 The amendment made by item 2 applies in relation to supplies of
residential premises on or after the day after this Schedule commences.
[Schedule 4, subitem 11(3)]
6.35 The first exception to the other amendments (that is, other than
those made by item 2) excludes certain `wholesale supplies' of residential
premises made on after or before 27 January 2011, from the application of
the new law, subject to certain conditions being satisfied in relation to the
`wholesale supply'. [Schedule 4, item 12, subitem 12(1)]
6.36 The first condition that needs to be satisfied is that the premises
from which the residential premises were created had earlier been
supplied to the recipient of the wholesale supply or the recipient's
associate. [Schedule 4, item 12, paragraph 12(2)(a)]
6.37 The second condition is that the recipient of the wholesale
supply, or the recipient's associate, was `commercially committed' to an
arrangement, under which the `wholesale supply' was or is to be made,
immediately before 27 January 2011. [Schedule 4,item 12, paragraph 12(2)(b)]
6.38 The third condition is that the wholesale supply was conditional
on specified building or renovation work being undertaken by the
recipient of the earlier supply or their associate. [Schedule 4, item 12,
paragraph 12(2)(c)]
6.39 The fourth condition is that any acquisitions relating to a
subsequent sale or supply by way of long-term lease of the residential
premises by the recipient of the `wholesale supply', have not been treated
as being creditable acquisitions for which an input tax credit entitlement
arises. This condition is also satisfied where a GST return has
subsequently been amended so that the net amount reported by the
recipient of the wholesale supply for any tax period does not include an
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GST treatment of new residential premises
amount equivalent to the input tax credits, or any part of the input tax
credits, that the recipient of the `wholesale supply' would have been
entitled to if its acquisitions relating to the next sale or long-term lease of
the residential premises were creditable acquisitions. [Schedule 4, item 12,
paragraph 12(2)(d)]
6.40 The term `arrangement' in subitem (2) includes, but is not
limited to, an agreement. [Schedule 4, subitem 12(3)]
6.41 The term commercially committed, in relation to an
arrangement, means:
· to be a party to the arrangement, where the arrangement is
legally binding;
· to be the preferred tenderer (however described) in the final
step in a bidding or tendering process relating to the
arrangement;
· to have directly made (with associates) acquisitions, having a
total GST exclusive value of at least $200,000, in relation to
the arrangement; or
· to have directly incurred (with associates) internal direct
costs, of at least $200,000, in relation to the arrangement.
[Schedule 4, subitem 12(3)]
6.42 A second exception relating to the other amendments excludes
supplies of residential premises made on or after 27 January 2011 from
the application of the new law, if the supply was made because a `property
subdivision plan' was lodged for registration before 27 January 2011 by
the recipient of the supply or the recipient's associate. [Schedule 4, item 13]
Consequential amendments
6.43 The words `When premises are new residential premises' are
inserted as a heading before subsection 40-75(1). [Schedule 4, item 1,
subsection 40-75(1)]
6.44 Subsection 40-75(2) is amended by omitting the words
`premises are not new residential premises' and substituting with the
words `residential premises are not `new residential premises'. [Schedule 4,
item 3, subsection 40-75(2)]
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
6.45 Paragraph 40-75(2)(a) is amended by omitting the words
`*residential premises' and substituting with the words `residential
premises'. [Schedule 4, item 4, paragraph 40-75(2)(a)]
6.46 The words `Disregard certain supplies of the premises' are
inserted as a heading before subsection 40-75(2A). [Schedule 4, item 6,
subsection 40-75(2A)]
6.47 Subsection 40-75(2A) is amended by omitting the words
`premises is disregarded as a sale' and substituting with the words
`residential premises is disregarded as a sale or supply'. [Schedule 4, item 7,
subsection 40-75(2A)]
6.48 Two notes are included in the legislation to direct users of the
legislation to the existence of the transitional provisions. [Schedule 4, item 8,
subsection 40-75(2B) (note 3) and subsection 40-75(2C) (note)]
6.49 The words `New residential premises include associated land'
are inserted as a heading before subsection 40-75(3). [Schedule 4, item 9,
subsection 40-75(3)]
76
Chapter 7
Deductible gift recipients
Outline of chapter
7.1 Schedule 5 to this Bill amends the Income Tax Assessment
Act 1997 (ITAA 1997) to update the list of deductible gift recipients
(DGRs) by adding one entity as a DGR, and changing the name of another
entity already specifically listed.
7.2 All legislative references in this chapter are to the ITAA 1997
unless otherwise stated.
Context of amendments
7.3 The income tax law allows income tax deductions for taxpayers
who make gifts of $2 or more to DGRs. To be a DGR, an organisation
must fall within one of the general categories set out in Division 30 or be
specifically listed by name in that Division.
7.4 DGR status assists eligible funds and organisations to attract
public support for their activities.
Summary of new law
7.5 These amendments add Rhodes Trust in Australia as a DGR, and
amend the name of `Playgroup Australia Incorporated' to `Playgroup
Australia Limited'.
Detailed explanation of new law
Rhodes Trust in Australia (ABN 24 218 682 610)
7.6 Taxpayers may claim a deduction for gifts made to Rhodes Trust
in Australia after 20 October 2011. [Schedule 5, item 2, item 9.2.24 in the
table in subsection 30-80(2)]
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
7.7 The purpose of Rhodes Trust in Australia is to raise monies in
Australia to augment the existing Rhodes Scholarship program at Oxford
University in the United Kingdom. All monies raised in Australia will be
used to provide scholarships to Australians to undertake tertiary education
at Oxford University in the United Kingdom.
Playgroup Australia Limited (ABN 31 142 795 695)
7.8 Playgroup Australia is currently listed as a DGR in the table in
subsection 30-70(2) under Playgroup Australia Incorporated (ABN 22 512
105 603).
7.9 This Schedule changes the name of `Playgroup Australia
Incorporated' to `Playgroup Australia Limited'. The entity has
undertaken a restructure to become a company limited by guarantee, and
has changed its name to reflect this. There has been no change to the
objectives or purposes of Playgroup Australia, or the purposes for which it
has been specifically listed as a DGR. [Schedule 5, item 1, item 8.2.12 in the
table in section 30-70(2)]
Consequential amendments
7.10 Changes have been made to update the index in Division 30 to
add Rhodes Trust in Australia, and to reflect the change in name of
Playgroup Australia Limited. [Schedule 5, items 3 and 4, items 97AAA and 86AA
in the table in section 30-315]
78
Chapter 8
Miscellaneous amendments to the tax
laws
Outline of chapter
8.1 Schedule 6 to this Bill makes miscellaneous amendments to the
taxation laws.
Context of amendments
8.2 These amendments essentially seek to ensure the taxation law
operates as intended. They correct technical or drafting defects, removing
anomalies and addressing unintended outcomes. These amendments are
part of the Government's commitment to the care and maintenance of the
taxation laws.
8.3 Miscellaneous amendment packages include addressing issues
raised through the Tax Issues Entry System (TIES).
· The TIES website (www.ties.gov.au), which the Australian
Taxation Office (ATO) and Treasury jointly operate,
provides a way for tax professionals and the general public
to raise issues relating to the care and maintenance of the
tax system. Relevant parts of this chapter identify TIES
issues.
Summary of new law
8.4 These amendments deal with issues including:
· correcting grammatical, referencing and asterisking errors;
· clarifying the operation and application of the tax law;
· ensuring that provisions are consistent with their original
policy intent; and
· repealing inoperative provisions.
8.5 Table 8.1 maps the content of this Schedule.
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
Table 8.1
Part Title
1 Corrections to cross-references
2 Repeal of references to Cultural Bequests Program and
redundant subsection numbers
3 List of tax offsets
4 Taxation Administration Act 1953
5 Foreign superannuation funds
6 Asterisks
7 References to Acts
8 Extensions of time
9 Cessation of membership of GST groups etc.
10 Small business participation percentage
11 Exempt income
12 Complying superannuation/First Home Saver Account
life insurance policies
13 Applications for tax file numbers
14 Taxable professional income
15 Consolidated groups
16 Demutualisation
17 Mining and quarrying definitions
18 BAS amount
19 Corporate tax rate
20 United Kingdom wounds and disability pension
21 Repeal of redundant provisions
22 Limited amendment period
23 Definition of managed investment trust
24 Equivalent foreign collective investment vehicles
25 Self managed superannuation funds
26 Untaxed plan cap
27 Correction of a typographical errors
28 Foreign income tax offset, the Medicare levy and the
Medicare levy surcharge
29 Adjusted tax
30 Section 109CA of the Income Tax Assessment Act 1936
31 Franking debits
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Miscellaneous amendments to the tax laws
8.6 More significant amendments include:
· providing the Commissioner of Taxation (Commissioner)
with a discretion to extend the two-year ownership period in
which the trustee of a deceased estate or beneficiary of such
an estate must dispose of their interest in the deceased's
dwelling to access either a full or a more generous partial
capital gains tax (CGT) main residence exemption (Part 8,
comprising items 94 to 96);
· ensuring that taxpayers can have a non-zero direct small
business participation percentage. This may occur in
situations where shares in a company are held jointly by
taxpayers and a discretionary trust has not make a
distribution in an income year where the trust had a tax loss
or no net income for that year. (This issue was identified
through TIES issues 0002-2010 and 0003-2011) (Part 10,
comprising items 106 to 116);
· allowing a complying superannuation/ First Home Saver
Account life insurance policy to include a deferred annuity
policy held by an individual that was purchased before
1 July 2007 from an eligible termination payment. (This
issue was identified through TIES issue 0037-2009) (Part 12,
comprising items 149 to 152);
· enabling lost policy holders with an interest in a
demutualisation receive equal CGT treatment to other policy
holders where the other relevant conditions are satisfied. The
amendment will apply in relation to demutualisations
occurring on or after 1 July 2008, so that demutualisations
that have already applied the demutualisation concessions
can benefit from this amendment (Part 16, comprising
items 162 and 163); and
· ensuring that the continuity of ownership test applies to
payments made on or after 1 July 2009 and not from the time
that the company acquired the dwelling. The intent of the
continuity of ownership test is to ensure that the ownership of
a dwelling does not change on or after 1 July 2009 rather
than before 1 July 2009 (Part 30, comprising items 252 and
253).
8.7 All of the amendments in Schedule 6 apply from the date of
Royal Assent unless otherwise stated.
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
Detailed explanation of new law
Schedule 6 -- Miscellaneous amendments
Part 1 -- Corrections to cross-references
Division 1
Table 8.2: Amendments to the Income Tax Assessment Act 1936
Provision being amended What the amendment does
Income Tax Assessment Corrects the cross-references in these
Act 1936 provisions.
102MA(2)(a)
102MA(2)(b)
[Schedule 6, items 1 and 2]
Division 2
Table 8.3: Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Corrects the cross-references in these
Act 1997 provisions.
207-59(1)
230-380(2) and (3)
230-380(6)(a)
995-1(1)(definition of
`non-arm's length limited
resource debt')
[Schedule 6, items 3 to 6]
Division 3 -- Citizenship
Table 8.4: Amendments to the Income Tax Assessment Act 1997 and
the Tax Laws Amendment (2006 Measures No. 3) Act 2006
Provision being amended What the amendment does
Income Tax Assessment Corrects the reference which should refer to
Act 1997 the Australian Citizenship Act 2007.
30-37(a)
Tax Laws Amendment (2006
Measures No. 3) Act 2006
2(1)(item 10 in the table)
Item 3 of Schedule 11
[Schedule 6, items 7 to 9]
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Miscellaneous amendments to the tax laws
Division 4 -- Tax-related liabilities
Table 8.5: Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Corrects the cross-reference in this provision.
Act 1997
721-25(1A)(a)
[Schedule 6, item 10]
Part 2 -- Repeal of references to Cultural Bequests Program and
redundant subsection numbers
Division 1 -- Cultural Bequest Program
Table 8.6: Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Removes references to the now inoperative
Act 1997 Cultural Bequests Program.
30-5(1)
30-5(1)(note 1)
30-5(1)(note 2)
30-15(2)(note 1)
30-15(2)(note 2)
30-115
30-D
30-315(item 41 in the table)
104-185(2)(c)
112-48(item 1 in the table)
118-60(1)
[Schedule 6, items 11 to 20]
Table 8.7: Amendments to the Income Tax (Transitional Provisions)
Act 1997
Provision being amended What the amendment does
Income Tax (Transitional Removes references to the now inoperative
Provisions) Act 1997 Cultural Bequests Program.
30-10
30-15
30-20
[Schedule 6, item 21]
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
Division 2 -- Redundant subsection numbers
Table 8.8: Amendments to the A New Tax System (Medicare Levy
Surcharge -- Fringe Benefits) Act 1999
Provision being amended What the amendment does
A New Tax System (Medicare Removes a redundant subsection number.
Levy Surcharge -- Fringe
Benefits) Act 1999
11(1)
[Schedule 6, item 22]
Table 8.9: Amendments to the Superannuation Industry (Supervision)
Act 1993
Provision being amended What the amendment does
Superannuation Industry Removes a redundant subsection number.
(Supervision) Act 1993
252(1)
[Schedule 6, item 23]
Table 8.10: Amendments to the Superannuation (Self Managed
Superannuation Funds) Supervisory Levy Act 1991
Provision being amended What the amendment does
Superannuation (Self Removes a redundant subsection number.
Managed Superannuation
Funds) Supervisory Levy
Act 1991
7(1)
[Schedule 6, item 24]
Part 3 -- List of tax offsets
Table 8.11: Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Updates the list of tax offsets to include
Act 1997 references to `film' and to `life insurance
13-1 company.
[Schedule 6, items 25 and 26] As a result of this amendment, the list of tax
offsets includes references to `film' covered
in Division 376 and to `life insurance
company subsidiary joining consolidated
group' in subsection 713-545(5).
84
Miscellaneous amendments to the tax laws
Part 4 -- Taxation Administration Act 1953
Table 8.12: Amendments to the Taxation Administration Act 1953
Provision being amended What the amendment does
Taxation Administration This amendment makes it explicit that
Act 1953 expressions used in the body of the Taxation
2(1) Administration Act 1953 (TAA 1953) do not
3AA(1A) take the meaning given by definitions in the
Income Tax Assessment Act 1997
[Schedule 6, items 27 and 28] (ITAA 1997) (or in Schedule 1 to the
TAA 1953), except where specific provision
is made to the contrary.
This separation of definitions is consistent
with a similar separation of definitions
between the ITAA 1997 and the Income Tax
Assessment Act 1936 (ITAA 1936): see
subsection 995-1(2) of the ITAA 1997 and
subsection 6(1AA) of the ITAA 1936. One
reason for this is that the ITAA 1936 does not
follow the `one expression, one meaning'
approach generally adopted in the
ITAA 1997.
The body of the TAA 1953 also does not
follow the `one expression, one meaning'
approach. By contrast, Schedule 1 to the
TAA 1953 is effectively incorporated into the
ITAA 1997, and does follow that approach.
Taxation Administration The object of section 8C of the TAA 1953 is
Act 1953 to make it an offence to fail to comply with
8C(1)(a) requirements under the taxation law.
Paragraph 8C(1)(a) is intended to make it an
[Schedule 6, item 29] offence to fail to provide any information or
document to the Commissioner as required
under a taxation law.
The purpose of this amendment is to clarify
that an offence under paragraph 8C(1)(a) is
not limited to failure to furnish an approved
form as defined in Schedule 1 to the
TAA 1953, or any other particular form. For
example, it would include a failure to lodge a
Superannuation Guarantee statement as
required under the Superannuation
Guarantee (Administration) Act 1992.
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
Part 5 -- Foreign superannuation funds
Division 1 -- Pensions and annuities
Table 8.13: Amendments to the Income Tax Assessment Act 1936
Provision being amended What the amendment does
Income Tax Assessment Ensure that amounts paid from foreign
Act 1936 superannuation funds are not subject to
603(1)(h) double taxation on distribution where
amounts were subject to tax under the
[Schedule 6, items 30 and 31] attribution rules contained in the former
foreign investment fund provisions.
The amendment applies to the 2007-08 and
later income years. The amendment will
allow the law to operate as intended and will
not have a detrimental effect on taxpayers.
Division 2 -- Superannuation lump sums
Table 8.14: Amendments to the Income Tax (Transitional Provisions)
Act 1997
Provision being amended What the amendment does
Income Tax (Transitional Ensure that amounts transferred from foreign
Provisions) Act 1997 superannuation funds are not subject to
Div 305 double taxation on distribution where
amounts were subject to tax under the
[Schedule 6, item 32] attribution rules contained in the former
foreign investment fund provisions.
Section 305-80 is a continuation of the
deduction previously allowable under former
section 533B of Part XI of the ITAA 1936.
The amendment applies to the 2010-2011 and
later income years. The amendment will
allow the law to operate as intended and will
not have a detrimental effect on taxpayers.
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Miscellaneous amendments to the tax laws
Part 6 -- Asterisking
Division 1 -- A New Tax System (Wine Equalisation Tax) Act 1999
Table 8.15: Amendments to the A New Tax System (Wine Equalisation
Tax) Act 1999
Provision being amended What the amendment does
A New Tax System (Wine Asterisks the term `ITAA 1997', as it is a
Equalisation Tax) Act 1999 defined term.
19-20(1)(a)
33-1 (definition of `connected
with')
[Schedule 6, items 33 and 34]
Division 2 -- Trading stock and revenue assets
Table 8.16: Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Ensures that the terms `trading stock' and
Act 1997 `revenue assets' are correctly asterisked.
28-170(3)(item 2 in the table,
column 2)
28-175(3)(b)
70-30(5)
70-35(1)(b)
70-100(6)(b) and 10(b)
165-115BB(2) (paragraph (a) of
the definition of `previous
capital losses, deductions or
trading stock losses')
165-115F(3) and (4)
385-135(3)(b)(ii)
715-145(2)(item 2 in the table,
column headed `If:')
723-50(2)(a)
723-50(2)(b)
725-225(5)
725-245(item 1 in the table,
column headed `Up interest')
725-245(item 2 in the table,
column headed `Up interest')
725-245(item 3 in the table,
column headed `Up interest')
725-310(2)
725-315
725-315(a)
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
Provision being amended What the amendment does
725-315(2)
725-335(3)( item 2 in the table,
column headed `To:')
725-335(3)(items 4 to 6 in the
table, column headed `To:')
977-25(3)(b)
977-35(2)(b)
995-1(1)(paragraph (b) of the
definition of `apportionable
deductions')
995-1(1)(paragraph (b) of the
definition of `consideration
receivable')
[Schedule 6, items 35 to 59]
Division 3 -- Other amendments
Table 8.17: Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Corrects the asterisking of the references to:
Act 1997 `capital gain', `corporate tax', `excess
36-25(item 5 in the table franking offsets', `foreign hybrid', `life
relating to tax losses of insurance company', `member', `tax loss',
companies) `business', `securities lending arrangement'
and `securities lending arrangements'.
36-25(item 1 in the table
relating to tax losses of
corporate tax entities)
36-25(item 1 in the table
relating to tax losses of
entities that become foreign
hybrids)
70-80(3)(a)
115-228(1) (definition of `net
financial benefit')
124-445(a)
216-10(1)(b)
216-30
[Schedule 6, items 60 to 67]
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Miscellaneous amendments to the tax laws
Part 7 -- References to Acts
Table 8.18: Amendments to the A New Tax System (Goods and Services
Tax) Act 1999, to the Income Tax Assessment Act 1997 and to the
Taxation Administration Act 1953
Provision being amended What the amendment does
A New Tax System (Goods Replaces references to the A New Tax System
and Services Tax) Act 1999 (Goods and Services Tax) Act 1999 and to the
9-20(1)(d) Income Tax Assessment Act 1997 with the
113-5(1) asterisked acronyms of `*GST Act' and
177-12(4)(b) `*ITAA 1997' respectively, as these are
defined terms.
195-1(definition of `non-cash
benefit')
195-1(definition of
`withholding payment'
covered by a particular
provision in Schedule 1 to the
Taxation Administration
Act 1953)
195-1(definition of
`withholding payment')
Income Tax Assessment
Act 1997
995-1 (Various definitions)
Taxation Administration
Act 1953
426-1 in Schedule 1
426-5(a) in Schedule 1
426-5(b) in Schedule 1
426-40(1) in Schedule 1
(paragraph (a) of note 1)
426-55(1) in Schedule 1
(paragraph (a) of note 1)
426-65(1)(a) in Schedule 1
426-65(1)(b) in Schedule 1
446-5(6) in Schedule 1
(items 9 and 10 in the table )
850-100(8)(a) in Schedule 1
(example)
850-100(8)(b) in Schedule 1
(example)
[Schedule 6, items 68 to 93]
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
Part 8 -- Extensions of time
Table 8.19: Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Subsection 118-195(1) of the ITAA 1997 (all
Act 1997 references in this Part are to this Act)
118-195(1) (at the end of the provides a CGT exemption to a beneficiary or
cell in item 1 in the table, trustee of a deceased estate where a CGT
column headed `And also one event happens to a dwelling (or an ownership
of these items') interest in a dwelling) acquired from a
deceased estate. An exemption is provided
118-200(3) where the following conditions are satisfied:
[Schedule 6, items 94 to 96] · the beneficiary or trustee's ownership
interest in the dwelling ends within two
Income Tax Assessment years of the deceased's death; and
Act 1936 · just before the deceased's death, for
170 post-CGT dwellings:
170A - the dwelling was their main residence;
[Schedule 6, subitem 4(1) and and
item 188] - it was not then being used to produce
assessable income.
Where a trustee or beneficiary of a deceased
estate cannot access a CGT exemption under
section 118-195, section 118-200 may
provide a partial exemption.
In particular, subsection 118-200(3) ensures
that for post-CGT dwellings, where the
trustee or beneficiary's ownership interest
ends within two years of the deceased's
death, the period between the deceased's
death and when their ownership interest ends
can be ignored when calculating a capital
gain or capital loss.
The amendments give the Commissioner
discretion to extend the time period in
subsections 118-195(1) and 118-200(3)
where the trustee or beneficiary of a deceased
estate's ownership interest ends after two
years from the deceased's death.
The Commissioner would be expected to
exercise discretion in situations such as
where:
· the ownership of a dwelling or a will is
challenged;
· the complexity of a deceased estate delays
the completion of administration of the
estate;
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Miscellaneous amendments to the tax laws
Provision being amended What the amendment does
· a trustee or beneficiary is unable to attend
to the deceased estate due to unforeseen
or serious personal circumstances arising
during the two-year period (for example,
the taxpayer or a family member has a
severe illness or injury); or
· settlement of a contract of sale over the
dwelling is unexpectedly delayed or falls
through for circumstances outside the
beneficiary or trustee's control.
These examples are not exhaustive.
In exercising this discretion, the
Commissioner is expected to consider
whether and to what extent the dwelling is
used to produce assessable income and the
period that the trustee or beneficiary held the
ownership interest in the dwelling.
The amendments will apply in relation to
CGT events that happen in the 2008-09
income year and later income years. The
amendments are beneficial to taxpayers.
The operation of section 170 of the
ITAA 1936 is modified so that taxpayers are
able to seek an amended assessment to take
advantage of these amendments where their
original assessment was made before the
commencement of these amendments but
their period for seeking an amendment to
their tax return has expired. Broadly,
taxpayers are able to seek an amended
assessment in these circumstances within two
years of that commencement.
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
Part 9 -- Cessation of membership of GST groups etc.
Table 8.20: Amendments to the A New Tax System (Goods and Services
Tax) Act 1999
Provision being amended What the amendment does
A New Tax System (Goods These amendments give effect to the
and Services Tax) Act 1999 suggestion made through TIES issue
48-110(1) 0013-2010.
48-115(1)(b) Section 195-1 of the GST Act defines the
48-110(2)(b) terms `cease to be a member of a GST group'
51-110(1) and `cease to be a participant of a GST joint
51-115(1)(b) venture' by reference to the Commissioner's
51-115(2)(b) approval of revocation of a member of a GST
195-1 (definition of `cease to group or a participant of a GST joint venture
be a member of a GST group') respectively. These amendments remove
these definitions as they are no longer
195-1 (definition of `cease to needed following the introduction of a
be a participant of a GST joint self-assessment system for GST groups and
venture') GST joint ventures by the Tax Laws
[Schedule 6, items 97 to 105] Amendment (2010 GST Administration
Measures No. 2) Act 2010.
These amendments also make consequential
amendments to Division 48 (GST groups)
and Division 51 (GST joint ventures) by
deleting the asterisk in front of the words
`cease to be a member of a GST group' and
`cease to be a participant of a GST joint
venture' respectively.
Part 10 -- Small business participation percentage
Division 1 -- Companies
Table 8.21: Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment These amendments give effect to the
Act 1997 suggestion made through TIES issue
152-70(2) and (3) 0003-2011.
[Schedule 6, items 106 to 109] Division 152 of the ITAA 1997 (all
references in this Part are to this Act unless
otherwise stated) provides four small business
Income Tax Assessment CGT concessions. To access these
Act 1936 concessions in relation to a share in a
170 company, it is necessary for that company to
170A have one or more significant individuals. The
significant individual test represents a readily
[Schedule 6, subitem 4(2) and
item 188] verifiable proxy for active participation in a
small business.
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Miscellaneous amendments to the tax laws
Provision being amended What the amendment does
However, where shares are jointly held, those
joint holders may be unable to qualify as a
significant individual. To qualify as a
significant individual, the individual's direct
and indirect small business participation
percentage in the company must be at least
20 per cent (sections 152-55 and 152-65).
Under subsection 152-70(1), an entity's direct
small business participation percentage in a
company is the smallest of the entity's
percentage of:
· the voting power in the company the
entity is entitled to exercise;
· any dividend payment that the entity is
entitled to receive; and
· any capital distribution that the entity is
entitled to receive.
Where shares are jointly held, it is arguable
that each joint holder in their own right has a
zero percentage of voting power as no joint
holder individually controls the voting power
bestowed on the jointly held shares. This
gives each joint holder a direct small business
participation percentage of zero in relation to
those jointly held shares and consequently
may exclude them from qualifying for the
small business CGT concessions.
These amendments switch off the voting
power calculation in subsection 152-70(1) to
accommodate joint shareholders for the
purpose of qualifying for the small business
CGT concessions. This has the effect that
joint shareholders calculate their small
business participation percentage based on
the lesser of their percentage entitlement to
any dividend or capital distribution of the
company.
These amendments apply to CGT events
happening in the 2006-07 income year and
later income years, in line with the
commencement of the original provisions.
These amendments are beneficial for
taxpayers.
The operation of section 170 of the
ITAA 1936 is modified so that taxpayers are
able to seek an amended assessment to take
advantage of these amendments where their
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
Provision being amended What the amendment does
original assessment was made before the
commencement of these amendments but
their period for seeking an amendment to
their tax return has expired. Broadly,
taxpayers are able to seek an amended
assessment in these circumstances within two
years of that commencement.
Division 2 -- Discretionary trusts
8.8 These amendments give effect to a suggestion made through
TIES issues 0002-2010 and 0002-2011.
8.9 Section 152-120 currently treats a trust (where entities do not
have entitlements to all of the income and capital of the trust) as if it had a
significant individual during an income year in which the trustee did not
make a distribution of income or capital if the trust had a tax loss or no
taxable income for that year. This applies only for the purposes of
meeting the condition required in particular circumstances in the small
business 15-year exemption that a trust must have a significant individual
for at least 15 years -- see paragraphs 152-105(c) and 152-110(1)(c).
8.10 However, section 152-120 does not work for indirectly held
entities as it does not give the assumed significant individual a direct
small business participation percentage in the first entity in the chain (the
trust of the kind mentioned in the previous paragraph), which is needed to
calculate their small business participation percentage in the final entity in
the chain (the indirectly held entity).
8.11 Also, section 152-120 does not work in relation to
paragraphs 152-110(1)(d) and 152-125(1)(b) for directly-held entities
where a trust (of the kind mentioned in paragraph 8.9) does not make a
distribution in the income year that the relevant CGT event happens (the
CGT event year). This is because those paragraphs require the trust to
have respectively a significant individual or a CGT concession
stakeholder just prior to the CGT event who must also satisfy other
conditions (such as an age condition). By deeming there to be a
significant individual but not identifying that individual, these conditions
cannot be satisfied.
8.12 The issues with section 152-120 are effectively issues with the
operation of section 152-70. Section 152-70 provides that an entity's
small business participation percentage at the relevant time in a trust (of
the kind mentioned in paragraph 8.9) is equal to the smaller of the
percentage of income or capital distribution the entity was beneficially
entitled to during the income year in which that time occurs.
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Miscellaneous amendments to the tax laws
8.13 A problem arises when the trustee of the trust does not make a
distribution in an income year, which results in the trust not having a
significant individual, apart from the assumed significant individual
mentioned in paragraph 8.9, or any CGT concession stakeholders for that
income year. This is particularly problematic if the income year is the
CGT event year because access to the small business CGT concessions in
particular circumstances requires an entity to have a significant individual
or a CGT concession stakeholder (for example, see subsection 152-10(2)
and paragraph 152-305(2)(b)).
8.14 The amendments allow, for the purpose of accessing the small
business CGT concessions, an entity to work out their direct small
business participation percentage in a trust (of the kind mentioned in
paragraph 8.9) at the relevant time if during the income year that includes
that time (the relevant year), the trustee of the trust:
· does not make a distribution of income; and
· does not make a distribution of capital.
However, an entity is able to work out a direct small business
participation percentage greater than zero only if the trust did not have net
income or had a tax loss for the relevant year. [Schedule 6, item 112,
subsections 152-70(4) and (6)]
8.15 Following on from the previous paragraph, if the trustee of the
trust made a distribution in the CGT event year, the entity's direct small
business participation percentage at the relevant time is worked out via
item 3 in the table in subsection 152-70(1) using the percentage of the
distributions the entity was beneficially entitled to in the CGT event year.
This is achieved by treating, if the trustee made a distribution in the
CGT event year, the references in that item to the `relevant year' as being
references to the CGT event year, which means the relevant time at which
the small business participation percentage is being calculated is treated as
occurring during the CGT event year. If the trustee of the trust did not
make a distribution in the CGT event year, the entity's direct small
business participation percentage at the relevant time is worked out using
the percentage of the distributions the entity was beneficially entitled to in
the last income year before the CGT event year in which the trustee made
a distribution. [Schedule 6, item 112, subsection 152-70(5)]
Example 8.1
XYZ trust is a trust where entities do not have entitlements to all of the
income and capital of the trust. XYZ trust operates a business and
owns land that it has used in the course of carrying on its business for
the last 20 years. Evan, Mario, Denise and Katrina are all objects of
XYZ trust and have been so for the last 20 years.
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
After suffering a bad trading year, XYZ trust decides to sell the land.
XYZ trust's aggregated turnover for the income year in which it sells
the land (the CGT event year) is less than $2 million. XYZ trust wants
to exempt the capital gain under the small business 15-year exemption
and pay out the exempt amount to Evan, Mario, Denise and Katrina.
In order for XYZ trust to meet the conditions of the small business
15-year exemption, Evan, Mario, Denise and Katrina have to work out
a small business participation percentage in XYZ trust.
The trustee of XYZ trust did not make a distribution in the CGT event
year and the trust had a tax loss for that year. The trustee made a
distribution of income in the year prior to the CGT event year with
Evan being beneficially entitled to 40 per cent of the income and
Mario, Denis and Katrina each being beneficially entitled to
20 per cent of the income. The trustee did not make a distribution of
capital in that year.
In all the other income years except the income year 14 years before
the CGT event year, the trustee of XYZ trust made a distribution and
XYZ trust had a significant individual. In the income year 14 years
before the CGT event year, the trustee did not make a distribution and
the trust had a tax loss for that year.
The amendments allow a direct small business participation percentage
to be calculated for Evan, Mario, Denise and Katrina for the CGT
event year and for the income year 14 years before the CGT event
year. As there is no distribution in the CGT event year, the focus shifts
to the last income year before the CGT event year in which there was a
distribution -- that is, the income year prior to the CGT event year.
Therefore, in the CGT event year and in the income year 14 years
before the CGT event year the direct small business participation
percentages are as follows: 40 per cent for Evan; and 20 per cent for
each of Mario, Denise and Katrina.
In the circumstances of this example, the amendments allow XYZ trust
to have a significant individual in the two tax-loss years. As Mario
was 60 years of age just before the land was sold, XYZ trust would be
able use the small business 15-year exemption to exempt the capital
gain on the sale of the land so long as the other relevant conditions of
the small business 15-year exemption are met.
8.16 If a trust (of the kind mentioned in paragraph 8.9) had net
income for the relevant year and did not have a tax loss for that year, an
entity's direct small business participation percentage at the relevant time
in the trust is zero, as the trustee has decided not to distribute the net
income. [Schedule 6, item 112, paragraph 152-70(6)(a)]
8.17 An entity's direct small business participation percentage at a
relevant time in a trust (of the kind mentioned in paragraph 8.9) is also
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Miscellaneous amendments to the tax laws
zero if the trustee did not make a distribution at any time before the end of
the CGT event year. This would apply where the trustee of the trust had
never made a distribution in the income years (including the CGT event
year) that the entity was an object of the trust and the trust had no net
income or had a tax loss in each of those income years.
· A distribution by the trustee during the CGT event year of
some or all of the capital gain made from the CGT event is a
distribution for the purpose of assigning an small business
participation percentage in that income year to the objects of
the trust. Trust law would determine whether the distribution
is a distribution of income or capital.
[Schedule 6, item 112, paragraph 152-70(6)(b)]
8.18 The amendments also enable an entity to calculate a small
business participation percentage in another entity in which it has an
indirect interest. For example, suppose an entity is an object of Trust A
(which is a trust of the kind mentioned in paragraph 8.9) that owns an
interest in Trust B (which is a trust of the kind mentioned in item 2 in the
table in subsection 152-70(1)) that carries on a business. If the trustee of
Trust A did not make a distribution in an income year and Trust A had a
tax loss or did not have net income for that income year, the amendments
allow the entity to calculate its direct small business participation
percentage in Trust A as long as the trustee made a distribution to the
entity while it was an object of the trust. The entity can then use its direct
small business participation percentage in Trust A and Trust A's direct
small business participation percentage in Trust B to calculate the entity's
small business participation percentage in Trust B.
8.19 The amendments repeal section 152-120 as it is no longer
required and repeal notes elsewhere in the legislation that refer to that
section. The amendments replace the term `current year' in item 3 in the
table in subsection 152-70(1) with `relevant year', as `current year' is a
defined term in section 995-1. [Schedule 6, items 110 and 111 and 113 to 115,
subsection 152-70(1) (paragraph (a) in the cell in item 3 in the table, column headed
`Is:'), subsection 152-70(1) (paragraph (b) in the cell in item 3 in the table, column
headed `Is:'), paragraph 152-105(c)(note), paragraph 152-110(1)(c)(note) and
section 152-120]
8.20 The amendments generally apply in relation to CGT events
happening in the 2006-07 income year and later income years to align
with the date of effect of the amendments that introduced the `significant
individual' test. [Schedule 6, subitem 116(1)]
8.21 The operation of section 170 of the ITAA 1936 is modified so
that taxpayers are able to seek an amended assessment to take advantage
of these amendments where their original assessment was made before the
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
commencement of these amendments but their period for seeking an
amendment to their tax return has expired. Broadly, taxpayers are able to
seek an amended assessment in these circumstances within two years of
that commencement. [Schedule 6, subitem 4(3), item 188]
Part 11 -- Exempt income
Division 1 -- Repeal of spent provisions
Table 8.22: Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Ensures the income tax law contains only one
Act 1997 provision dealing with exempt payments to
11-15(item in the table headed individuals.
`family assistance') Repeals certain provisions from Division 52
11-15(item in the table headed that exempt payments from income tax which
`social security or like are no longer being made.
payments')
52-10(1)(b)
52-10(1B) and (1C)
52-65(1)(bb) and (c)
52-65(1B) and (1C)
52-75(item 1C in the table)
52-75(cell in item 1 in the
table, column headed
`Payment made because of a
person's death')
52-75(cell in item 3 in the
table, column headed
`Payment made because of a
person's death')
52-75(cell in item 6 in the
table, column headed
`Payment made because of a
person's death')
52-75(cell in item 7 in the
table, column headed
`Payment made because of a
person's death')
52-75(cell in item 9 in the
table, column headed
`Payment made because of a
person's death')
52-150(1)
52-150(2)
[Schedule 6, items 117 to 131]
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Miscellaneous amendments to the tax laws
Division 2 -- Lists of exempt incomes
Table 8.23: Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Combines the lists that were previously in
Act 1997 sections 11-10 and 11-15, and ensures that
6-20(1)(note) the references are correct.
11-1
11-1(b) and (c)
11-10
11-15(heading)
11-15(after items in the table
headed `family assistance '
and `foreign aspects of income
taxation')
11-15(after item in the table
headed `health')
11-15(after item in the table
headed `life-insurance
companies')
11-15(after item in the table
headed `social security or like
payments')
11-15(after item in the table
headed `superannuation and
related business')
[Schedule 6, items 132 to 142]
Division 3 -- Australian Victim of Terrorism Overseas Payment
Table 8.24: Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Inserts a reference to `Australian Victim of
Act 1997 Terrorism Overseas Payment', as they also
11-15(item in the table headed qualify as a social security payment.
`social security or like
payments')
[Schedule 6, item 143]
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
Division 4 -- Amendments contingent on the Clean Energy (Household
Assistance Amendments) Act 2011
Table 8.25: Amendments to the Clean Energy (Household Assistance
Amendments) Act 2011
Provision being amended What the amendment does
Clean Energy (Household This amendment ensures that numbering
Assistance Amendments) and references are correct.
Act 2011
Item 16 of Schedule 10 (heading)
Item 2 of Schedule 10
11-15(item in the table headed
`family assistance')
11-15(at the end of item in the
table headed `family')
[Schedule 6, items 144 and 145]
Income Tax Assessment
Act 1997
11-15(item in the table headed
`family assistance')
11-15(item in the table headed
`social security or like payments')
[Schedule 6, items 146 to 148]
Part 12 -- Complying superannuation / First Home Saver Account life
insurance policies
Divisions 1 and 2 -- Virtual pooled superannuation trust life insurance
policies and complying superannuation/ First Home Saver Account life
insurance policies
Table 8.26: Amendments to the Income Tax Transitional Provisions Act
1997
Provision being amended What the amendment does
Income Tax Transitional This amendment gives effect to the
Provisions Act 1997 suggestion made through TIES issue
320F 0037-2009.
320-180 The amendment ensures that a deferred
320-180(1) annuity policy held by an individual that was
[Schedule 6, items 149 to 152] purchased before 1 July 2007 from an eligible
termination payment is included in the
complying superannuation business of life
insurance companies.
Prior to the introduction of the First Home
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Miscellaneous amendments to the tax laws
Provision being amended What the amendment does
Saver Account life insurance policies rules,
deferred annuity policies were treated as
virtual pooled superannuation trust policies.
When the First Home Saver Account life
insurance policies rules were introduced,
virtual pooled superannuation trust policies
were changed to complying superannuation /
First Home Saver Account life insurance
policies. Therefore from that time deferred
annuity policies will be treated as complying
superannuation / First Home Saver Account
life insurance policies.
This amendment requires retrospective
application from the 2007-08 income year, as
that is when the Better Super reforms
commenced. This amendment will be
beneficial to affected taxpayers.
Part 13 -- Applications for tax file numbers
Table 8.27: Amendments to the Income Tax Assessment Act 1936
Provision being amended What the amendment does
Income Tax Assessment This amendment gives effect to the
Act 1936 suggestion made through TIES issue
202B(2) 0052-2009 and makes a minor change to the
existing TFN application process to remove
[Schedule 6, items 153 to 156] the requirement for documentary evidence of
the applicant's identity to be attached to the
electronic TFN application form.
In particular, the Commissioner will be able
to determine the most efficient application
method and how the documentary evidence is
to be provided. This will enable electronic
lodgment of applications and ensure there is
clear and consistent direction as to the
manner in which a TFN application is to be
made.
Part 14 -- Taxable professional income
Table 8.28: Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Certain taxpayers such as sportspersons,
Act 1997 inventors and artists can have significant
405-45 (formula in step 2 in fluctuations in their income. Division 405 of
the method statement) the ITAA 1997 provides a regime to lessen
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
Provision being amended What the amendment does
[Schedule 6, items 157 and 158] the impact of these fluctuations on marginal
tax rates in the income years when a
taxpayer's taxable professional income is
above their average as determined under that
Division. Section 405-45 of the ITAA 1997
shows how to work out taxable professional
income. Step 2 of the formula in
section 405-45 is used to determine the
amount of certain apportionable deductions
(such as gifts and donations) that can be
allocated to a taxpayer's assessable
professional income and other income. This
calculation is relevant for the purposes of
determining taxable professional income.
Taxable professional income is then subject
to averaging for the purposes of determining
whether a taxpayer has above average
professional income.
Division 405 of the ITAA 1997 was enacted
by the Tax Law Improvement Act
(No. 1) 1998. Section 405-45 was designed
to replace section 158J of the ITAA 1936.
Section 158J contained a formula to allocate
apportionable deductions between the
taxpayer's special professional income and
their other income. When the section 158J
formula was reproduced in section 405-45,
the denominator was transcribed incorrectly
such that `+' became `-'.
Both before and after 1998, the ATO systems
have consistently calculated taxable
professional income using a `+' in the
denominator when applying the formula. A
retrospective amendment would ensure that
the formula contained in the Act accords with
the intent of the law, and ATO processing of
tax returns.
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Miscellaneous amendments to the tax laws
Part 15 -- Consolidated groups
Division 1 -- Partnerships
Table 8.29: Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment This amendment gives effect to a suggestion
Act 1997 made through TIES issue 0005-2009 to
713-265(heading) modify the heading to section 713-265, so
that it refers to a partner (rather than a
[Schedule 6, item 159] partnership) that leaves the group.
Division 2 -- Amendments applying from 1 July 2002
Table 8.30: Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment This amendment gives effect to a suggestion
Act 1997 made through TIES issue 0029-2010 to
715-90(2) clarify how the same business test applies
when an entity leaves a consolidated group
[Schedule 6, items 160 and 161] for the purposes of determining whether the
integrity rules relating to unrealised net losses
apply.
The amendment ensures that the leaving
entity can apply the assumptions that are
ordinarily applied in respect of trading stock
losses for the purposes of determining
whether it satisfies the same business test.
This amendment applies from the
commencement of section 715- 90, which
was 1 July 2002. The amendment is
beneficial to taxpayers, as it will make it
easier for them to satisfy the same business
test (and therefore avoid the operation of the
integrity rules).
Part 16 -- Demutualisation
Table 8.31: Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Division 316 of the ITAA 1997 (all
Act 1997 references in this Part are to this Act)
316-155(2) disregards various capital gains and capital
losses that may arise when a friendly society
[Schedule 6, items 162 and 163] demutualises to become a `for profit' entity.
Demutualisation involves the participants of a
friendly society giving up the right to benefit
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Provision being amended What the amendment does
in the future from any accumulated mutual
surplus that has been (or may be) built up in
the fund. Upon demutualisation there is
effectively a distribution of any accumulated
mutual surplus to the participants.
Ordinarily, this triggers a CGT taxing point
as participants may receive shares, rights to
acquire shares or cash.
There are different conditions to access the
CGT concessions under Division 316
depending on if the demutualising friendly
society has lost policy holders or not. If a
mutual fund does not have lost policy
holders, there is no requirement that the
demutualisation scheme be court-approved.
If a friendly society has lost policy holders,
the demutualisation scheme must be court-
approved and a lost policy holders' trust must
be established to hold distributed assets or
cash on the behalf of the lost policy holders
(subsection 316-155(2)).
Since the introduction of Division 316, it has
become apparent that where there are lost
policy holders a demutualisation can proceed
without court approval. Accordingly, the
requirement in subsection 316-155(2) for
court approval is an unnecessary impediment
to demutualisations where there are lost
policy holders.
The amendments will remove the requirement
in subsection 316-155(2) that the lost policy
holders' trust has to exist under a scheme
approved by a court. This will ensure that
lost policy holders that have an interest in the
demutualisation will receive equal CGT
treatment to other policy holders where the
other relevant conditions are satisfied.
The amendment applies in relation to
demutualisations occurring on or after
1 July 2008 so that demutualisations that have
already applied the demutualisation
concessions may benefit from this
amendment.
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Miscellaneous amendments to the tax laws
Part 17 -- Mining and quarrying definitions
Table 8.32: Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Improve the definitions of: `exploration or
Act 1997 prospecting', `minerals', `petroleum',
40-80(1)(c)(i) `mining operations', and `mining, quarrying
40-95(11)(b) or prospecting information' which pointed the
40-110(3B) reader to definitions in section 40-730, by
40-740(1)(d) referring to the relevant subsections.
124-710(1)(a) The amendments also fix the asterisking of
855-20(b) the terms `minerals' and `petroleum'.
995-1 (definition of Corrects the spelling of the word `education'
`exploration or prospecting') in paragraph (b) of the definition of `housing
995-1(1) (paragraph (b) of the and welfare'.
definition of `housing and
welfare')
995-1 (definition of
`minerals')
995-1 (definition of `mining
operations')
995-1 (definition of `mining,
quarrying or prospecting
information')
995-1 (definition of `mining,
quarrying or prospecting
rights')
995-1 (definition of `natural
resources')
995-1 (definition of
`petroleum')
[Schedule 6, items 164 to 176]
Part 18 -- BAS amount
Table 8.33: Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment This amendment converts the definition of
Act 1997 the term `BAS amounts' into the singular
995-1(1) `BAS amount'.
[Schedule 6, items 177 and 178]
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
Part 19 -- Corporate tax rate
Table 8.34: Amendments to the Income Tax Assessment Act 1997 and
to the Taxation Administration Act 1953
Provision being amended What the amendment does
Income Tax Assessment Substitutes the term `*corporate tax rate' in
Act 1997 place of `*general company tax rate' to
705-115(1) (formula) ensure that the correct term is used in the
711-45(1) formulae in the legislation.
711-45(3) (formula)
Taxation Administration
Act 1953
288-80(3) in Schedule 1
(formula)
[Schedule 6, items 179 to 182]
Part 20 -- United Kingdom wounds and disability pension
Table 8.35: Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment This amendment gives effect to the
Act 1997 suggestion made through TIES issue
53-10 (paragraph (a) of the 0012-2010.
cell in item 5 in the table, This amendment ensures that an income tax
column headed `... is exempt exemption for a United Kingdom wounds and
subject to these exemptions disability pension paid to members of the
and special conditions:') armed services continue. The reference to
[Schedule 6, item 183] `subsection 315(2) of the Income and
Corporation Taxes Act 1988 of the United
Kingdom' in column 3 of item 5 in the table
in section 53-10 is being replaced with the
reference to `section 641 of the Income Tax
(Earnings and Pensions) Act 2003 (UK)'.
Part 21 -- Repeal of redundant provisions
Table 8.36: Amendments to the A New Tax System (Goods and Services
Tax) Act 1999
Provision being amended What the amendment does
A New Tax System (Goods This amendment repeals the definition of the
and Services Tax) Act 1999 term `electronic signature', as this term is not
195-1(definition of `electronic used in the GST Act.
signature')
[Schedule 6, item 184]
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Miscellaneous amendments to the tax laws
Table 8.37: Amendments to the Income Tax Rates Act 1986
Provision being amended What the amendment does
Income Tax Rates Act 1986 This amendment repeals a redundant
22 provision.
[Schedule 6, item 185]
Table 8.38: Amendments to the Taxation Administration Act 1953
Provision being amended What the amendment does
Taxation Administration This amendment repeals a redundant
Act 1953 provision and ensures that the numbering is
45-910(3)(c) in Schedule 1 correct.
45-910(3) in Schedule 1 (note)
[Schedule 6, items 186 and 187]
Part 22 -- Limited amendment period
Table 8.39: Amendments to the Income Tax Assessment Act 1936
Provision being amended What the amendment does
Income Tax Assessment This amendment gives effect to the
Act 1936 suggestion made through TIES issue
170A 0022-2010.
[Schedule 6, items 188 and 189] A taxpayer can take advantage of
retrospective changes to the law provided the
ATO processes their request for an
amendment to an assessment and issues an
amended assessment.
The Commissioner can amend an ordinary
assessment after a limited amendment period
expires if, broadly, the taxpayer has raised an
issue affecting the assessment before the
period expires and the Commissioner is still
considering the issue. Therefore, it is
proposed to allow the Commissioner to
amend an assessment after the two-year
period that commences from the date of
Royal Assent to the amending Act to allow a
taxpayer to take advantage of the
retrospective change in circumstances.
This amendment ensures that taxpayers are
not unfairly disadvantaged if the ATO is
unable to issue an amended assessment,
despite the request for amendment being
lodged and having been considered, within a
two-year period.
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
Provision being amended What the amendment does
Example
Tax Laws Amendment (2010 Measures No. 1)
Act 2010 inserted section 716-860 (which is
about CGT events which straddle the time
that an entity joins or leaves a consolidated
group) into the ITAA 1997.
Section 4 of the Tax Laws Amendment (2010
Measures No. 1) Act 2010 provides for the
amendment of assessments in respect of
section 713-725. It effectively requires that
an amended assessment must be made by
3 June 2012, two years after Royal Assent.
Head Co lodges a request for a private ruling
on 1 June 2012. The private ruling is for the
purpose of amending their assessment in
respect of section 713-725.
Section 170A extends the period in which the
Commissioner has to amend Head Co's
assessment beyond 3 June 2012.
108
Miscellaneous amendments to the tax laws
Part 23 -- Definition of managed investment trust
Table 8.40: Amendments to the Tax Laws Amendment (2010 Measures
No. 3) Act 2010
Provision being amended What the amendment does
Tax Laws Amendment (2010 There is some doubt as to whether the
Measures No. 3) Act 2010 application and transitional provisions of the
7-1 of Schedule 5 Tax Laws Amendment (2010 Measures No. 3)
Act 2010 apply for the purposes of
[Schedule 6, item 190] Division 275 of the ITAA 1997 as intended in
relation to trusts in existence in the 2008-09
and 2009-10 income years. That could mean,
for example, that a trust in existence in the
2008-09 and/or the 2009-10 income year
could use the definition of a `managed
investment trust' that applied before the
amendments made by the Tax Laws
Amendment (2010 Measures No. 3) Act 2010
for the purpose of making an election under
Division 275 of the ITAA 1997.
The amendment, to insert subitem 7(2),
ensures that the transitional rules do apply as
intended to ensure a trust that was in
existence in either (or both) of the 2008-09
and 2009-10 income years and that was a
managed investment trust within the meaning
of section 12-400 in Schedule 1 to the
TAA 1953 immediately before the
commencement of Schedule 5 to the Tax
Laws Amendment (2010 Measures No. 3)
Act 2010, can make an election under
Division 275 of the ITAA 1997.
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
Part 24 -- Equivalent foreign collective investment vehicles
Table 8.41: Amendments to the Taxation Administration Act 1953
Provision being amended What the amendment does
Taxation Administration There is some doubt as to whether
Act 1953 paragraph 12-402(3)(e) in Schedule 1 to the
12-402(3)(e) in Schedule 1 TAA 1953 is applying as intended. That
could mean that an entity that is recognised
[Schedule 6, items 191 and 192] under a foreign law as being used for
collective investment may not qualify under
paragraph 12-402(3)(e) if the foreign law
itself does not specify the entity must have at
least 50 members.
The amendment to paragraph 12-402(3)(e)
ensures that the paragraph is applying as
intended, to include an entity that is
recognised under a foreign law as being used
for collective investment by pooling the
contribution of its members, provided the
entity has at least 50 members and the
contributing members that have acquired
rights to benefits produced by the entity do
not have day-to-day control over the entity's
operation. A contributing member would
include members who have acquired interests
in the entity from the initial pooling of
contributions or subsequently from one or
more other members (for example, in the case
of a limited partnership where a partner
acquires rights to benefits produced by a
limited partnership when taking up the
interests of a retiring limited partner).
Part 25 -- Self managed superannuation funds
Division 1 -- Definition of self managed superannuation fund
Table 8.42: Amendments to the Superannuation Industry (Supervision)
Act 1993
Provision being amended What the amendment does
Superannuation Industry This amendment gives effect to the
(Supervision) Act 1993 suggestion made through TIES issue
10(1) (definition of `self 0017-2010.
managed superannuation Amends paragraph 17A(3)(c) so that if the
fund') trustee of the self managed superannuation
17(A)(heading) fund is a body corporate, a parent or guardian
17(A)(1) can be director of the body corporate in place
17(a)(2) of a member who is a minor and does not
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Miscellaneous amendments to the tax laws
Provision being amended What the amendment does
17A(3)(c) have a legal personal representative.
17B The definition of `self managed
[Schedule 6, items 193 to 199] superannuation fund' includes that all
members must be a trustee of the fund or a
director of the corporate trustee.
Paragraph 17A(3)(c) contains an exception
where a parent or guardian can be trustee in
place of a member who is a minor and does
not have a legal personal representative. This
amendment corrects an oversight when this
paragraph was inserted so that the exception
also applies to self managed superannuation
funds with a corporate trustee.
This amendment applies from
8 October 1999, because that is when
paragraph 17A(3)(c) was inserted.
This amendment clarifies that the prohibition
on the remuneration of trustees and directors
of a body corporate that is trustee of the fund
applies only to duties or services performed
in the capacity of trustee or in the capacity of
director and in connection with the body
corporate's capacity of trustee.
The definition of `self managed
superannuation fund' specifies that trustees or
directors of the body corporate, if the trustee
is a body corporate, cannot receive
remuneration for duties or services performed
in relation to the fund.
Section 17B also places certain restrictions on
trustee remuneration for non-trustee duties
and services. The purpose of these
restrictions is to ensure that trustee
remuneration is not used by trustees to obtain
access to their superannuation benefits before
they are eligible.
Trustees and directors may be remunerated
for non-trustee duties or services, provided
that:
· they are appropriately qualified and
licensed to perform the duties or services;
· the duties or services are performed as
part of a business through which the
trustee or director provides the same
services to the public; and
· the remuneration is on an arm's length
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
Provision being amended What the amendment does
basis.
Subsection 17B(1), which applies to
remuneration of trustees, applies from
8 October 1999 because this is when
paragraphs 17A(1)(f) and (2)(c) were
inserted.
Subsection 17B(2), which applies to the
remuneration of a director of a body
corporate that is trustee of the fund, applies to
the 2007-08 income year and later income
years because those are the income years to
which paragraphs 17A(1)(g) and (2)(d) apply.
These amendments ensure that the law
operates as it was intended will not have
detrimental effects on taxpayers.
Division 2 -- References to self managed superannuation funds
Table 8.43: Amendments to references to self managed
superannuation funds
Provision being amended What the amendment does
Income Tax Assessment Act 1997 Updates the references to the
210-70(1)(b)(i) definition of `self managed
210-70(1)(b)(ii) superannuation fund'.
210-170(2)(a) Corrects references to `self managed
210-170(2)(b) superannuation fund' that incorrectly
[Schedule 6, items 200 to 203] used a hyphen.
Superannuation Industry
(Supervision) Act 1993
6(1)(note)
17A(6)(notes 1 and 2)
29N(1A)
35B(heading)
35D(heading)
229(1)(aa)(i)
229(3) and 231(3)
327 (paragraph (aa) of the definition
of `modifiable provision')
[Schedule 6, items 204 to 211]
Taxation Administration Act 1953
355-65(3) in Schedule 1 (paragraph
(a) in the cell in item 8 in the table,
112
Miscellaneous amendments to the tax laws
Provision being amended What the amendment does
column headed `and the record or
disclosure...')
355-65(3) in Schedule 1 (paragraphs
(b) and (c) in the cell in item 8 in the
table, column headed `and the record
or disclosure...')
[Schedule 6, items 212 and 213]
Part 26 -- Untaxed plan cap
Table 8.44: Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Clarifies that when a person receives a
Act 1997 superannuation lump sum that contains an
307-350(2) untaxed element, the person's untaxed plan
307-350(2A) cap amount is only reduced by the untaxed
element of a superannuation lump sum, rather
[Schedule 6, items 214 to 216] than by the whole lump sum.
Updates a reference to the amended
subsection 307-350(2).
These amendments apply on and after
1 July 2007 because that is when
subsection 307-350(2) was inserted. These
amendments do not have an adverse effect on
taxpayers.
Part 27 -- Correction of typographical errors
Table 8.45: Amendments to the Income Tax Assessment Act 1997
Provision being amended What the amendment does
Income Tax Assessment Fixes a typographical error.
Act 1997
775-205(c)(i)
[Schedule 6, item 217]
Table 8.46: Amendments to the Taxation Administration Act 1953
Provision being amended What the amendment does
Taxation Administration Fixes a typographical error.
Act 1953
16-153(2)(c)
[Schedule 6, item 218]
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
Part 28 -- Foreign income tax offset, the Medicare levy and the
Medicare levy surcharge
Table 8.47: Amendments to the Income Tax Assessment Act 1997,
the Income Tax Assessment Act 1936, the Taxation Administration
Act 1953 and the Taxation (Interest on Overpayments and Early
Payments) Act 1983
Provision being amended What the amendment does
Income Tax Assessment There is some doubt whether the ITAA 1997
Act 1997 and Schedule 1 to the TAA 1953 apply, as
63-10(1) intended, to the Medicare levy and the
770-5 Medicare levy surcharge in the same way as
770-10(1) they apply to normal income tax.
995-1(1) Amendments made in 2010 to insert
section 90-1 of Schedule 1 to the TAA 1953
operate to ensure taxpayers calculating the
Income Tax Assessment limit on their foreign income tax offset for an
Act 1936 income year include the Medicare levy and
6(1) the Medicare levy surcharge.
160AD Amendments are made to the ITAA 1997 to
251R ensure that any foreign income tax offset for
251S(1) an income year that remains after being
251T applied against a taxpayer's basic income tax
251U liability can be applied first to reduce any
251V liability for the Medicare levy for the income
251VA year and if any remains, to reduce any
251W liability for the Medicare levy surcharge for
251X the income year.
251Z Consequential amendments are also made
to the ITAA 1936, the TAA 1953, the
Taxation Administration ITAA 1997 and the Taxation (Interest on
Act 1953 -- Schedule 1 Overpayments and Early Payments) Act 1983
to include definitions of the Medicare levy
11-1(b) and the Medicare levy (fringe benefits)
15-30(b) surcharge in subsection 6(1) of the
45-5(1)(b) ITAA 1936, and to include a definition of the
45340 `Medicare levy' in the ITAA 1997.
45-375
90-1 The amendments apply to income years
starting on or after 1 July 2008 -- the start
date for the new foreign income tax offset
Taxation (Interest on rules -- to ensure those rules apply, as
Overpayments and Early intended, from their first application.
Payments) Act 1983
3(1)
[Schedule 6, items 219 to 248]
114
Miscellaneous amendments to the tax laws
Part 29 -- Adjusted tax
Table 8.48: Amendments to the Taxation Administration Act 1953
Provision being amended What the amendment does
Taxation Administration Corrects the calculation of the adjusted tax on
Act 1953 the adjusted taxable income or adjusted
45-340 in Schedule 1 (step 4 withholding income. Family Tax Benefit can
in the method statement) no longer be claimed through the ATO when
lodging an annual income tax return and
45-375 in Schedule 1 (step 4 Family Tax Benefit is no longer applicable
in the method statement) for inclusion in step 4 a calculation which
[Schedule 6, items 249 to 251] reduces the adjusted tax amount.
This amendment will not have a dertrimental
effect on taxpayers. It will apply from
1 July 2009, as that was the date from which
claims for Family Tax Benefit, including
previous year claims could no longer be
accepted by the ATO as a result of the Family
Assistance and Other Legislation Amendment
(2008 Budget and Other Measures) Act 2009.
Part 30 -- Section 109CA of the Income Tax Assessment Act 1936
Table 8.49: Amendments to the section 109CA of the Income Tax
Assessment Act 1936
Provision being amended What the amendment does
Income Tax Assessment Enables taxpayers to access the exception,
Act 1936 where the ownership of a dwelling changed
109CA before 1 July 2009.
[Schedule 6, items 252 and 253] The amendment fixes an unintended outcome
that the continuity of ownership test applies
to payments made after 1 July 2009 and not
from the time that the company acquired the
dwelling. This situation was inappropriate
because the intent of the continuity of
ownership was to ensure that the ownership
of a dwelling does not change on or after
1 July 2009 rather than before 1 July 2009.
This amendment will enable the law to
operate as intended and will not have a
detrimental effect on taxpayers.
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Tax Laws Amendment (2011 Measures No. 9) Bill 2011
Part 31 -- Franking debits
Table 8.50: Amendments to the Income Tax Assessment Act 1936
Provision being amended What the amendment does
Income Tax Assessment Removes an inappropriately onerous outcome
Act 1936 for taxpayers. Paragraph 45C(3)(b) is
45C(3)(b) amended to the effect that the amount of the
franking debit is the amount that (if the
[Schedule 6, items 254 and 255] company had paid a dividend of an amount
equal to the amount of the capital benefit, etc)
would have been the amount of the maximum
franking credit on the dividend.
This amendment is to apply to notices of
determination, under subsection 45A(2)
or 45B(3) of the ITAA 1936, served on or
after 1 July 2002. This will ensure that the
law operates as it was originally intended.
116
Index
Schedule 1: Form for portability of superannuation
Bill reference Paragraph number
Item 1, subparagraph 3(1)(a)(ii) of the RSA Act 1.19
Item 2, subparagraph 3(1)(a)(iii) of the RSA Act 1.24
Item 3, paragraph 3(1)(e) of the RSA Act 1.20
Item 4, subsection 3(1)(note) of the RSA Act 1.23
Item 5, new paragraph 16(c) of the RSA Act 1.25
Items 6, 7, 15 and 16 (new headings) 1.18
Item 8, section 39A of the RSA Act 1.15
Item 9, subsection 138A(1) of the RSA Act 1.26
Item 9, subsection 138A(2) of the RSA Act 1.27
Item 9, subsection 138A(3) of the RSA Act 1.29
Item 9, subsection 138A(4) of the RSA Act 1.31
Item 10, subsection 144(2A) of the RSA Act 1.26
Item 11, subparagraph 6(1)(a)(xii) of the SIS Act 1.34
Item 12, paragraph 6(1)(b) of the SIS Act 1.24
Item 13, paragraph 6(1)(g) of the SIS Act 1.20
item 14, subsection 6(1)(note) of the SIS Act 1.23
Item 17, section 34A of the SIS Act 1.15
Item 18, subsection 299NA(1) of the SIS Act 1.26
item 18, subsection 299NA(2) of the SIS Act 1.27
Item 18, subsection 299NA(3) of the SIS Act 1.29
item 18, subsection 299NA(4) of the SIS Act 1.31
Item 19, subsection 299U(2A) of the SIS Act 1.26
117
Tax Laws Amendment (2011 Measures No. 9) Bill 2011
Schedule 2: Capital gains tax and certain business
restructures
Bill reference Paragraph number
Item 1, subparagraph 124-20(3)(b)(ii) 2.22
Items 1, 3, 8, 9 and 10, sections 124-20, 125-235 and 126-265 2.15
Items 1 and 9, subparagraph 124-20(3)(b)(i) and 2.23
paragraph 125-235(3)(b)
Items 1, 9 and 10, sections 124-20, 125-235 and 126-265 2.19, 2.21
Items 1, 9 and 10, subsections 124-20(1), (4) and (5), 125-235(1) 2.25
and 126-265(1)
Items 1, 9 and 10, subparagraphs 124-20(1)(c)(i), 125-235(1)(c)(i) 2.26
and 126-265(1)(c)(i)
Items 1, 9 and 10, subparagraphs 124-20(1)(c)(ii), 125-235(1)(c)(ii) 2.27
and 126-265(1)(c)(ii)
Items 1, 9 and 10, subparagraphs 124-20(1)(e)(ii), 125-235(1)(e)(ii) 2.28
and 126-265(1)(e)(ii)
Items 2 and 4 to 7, item 15, paragraphs 124-360(1)(c)(note), 2.16
124-370(1)(e)(note), 124-445(c)(note) and 124-455(1)(e)(note),
subsection 124-860(6)(note), paragraph 124-1045(1)(d)(note) and
subsections 124-520(1)(note) and 124-525(1)(note)
Item 11 2.31
Item 12, subsection 125-65(2A) 3.12
Item 13, paragraph 125-70(1)(g) 3.20
Item 14 3.19
Item 15, section 124-510 4.15
Item 15, section 124-515 4.16
Item 15, sections 124-520, 124-525, 124-530 and 124-535 4.17
Item 15, paragraphs 124-520(1)(a) and (b) 4.18
Item 15, paragraph 124-520(1)(c) 4.19, 4.22
Item 15, subparagraph 124-520(1)(c)(i) 4.20
Item 15, subparagraph 124-520(1)(c)(ii) 4.21
Item 15, subsections 124-520(2) and (3) 4.32
Item 15, paragraph 124-520(2)(a) 4.26
Item 15, paragraph 124-520(2)(b) 4.27
Item 15, subsection 124-520(3) 4.31
Item 15, subsection 124-520(4) 4.33
Item 15, section 124-525 4.34
Item 15, paragraphs 124-525(1)(a) and (b) 4.35
118
Index
Bill reference Paragraph number
Item 15, paragraph 124-525(1)(c) 4.36, 4.37
Item 15, subparagraphs 124-525(1)(c)(i) and (ii) 4.39
Item 15, paragraph 124-525(1)(d) 4.40
Item 15, paragraph 124-525(1)(e) 4.41
Item 15, paragraph 124-525(1)(f) 4.43, 4.44
Item 15, subsection 124-525(2) 4.45
Item 15, subsection 124-525(3) 4.46
Item 15, subsection 124-530(1) 4.50
Item 15, subsection 124-530(2) 4.51
Item 15, subsection 124-530(3) 4.52
Item 15, subsection 124-530(4) 4.53
Item 15, subsections 124-530(5) and 124-535(3) 4.48
Item 15, subsection 124-535(1) 4.54
Item 15, subsection 124-535(2) 4.55
Items 17 and 18 4.82
Item 19 4.83
Items 20 to 23, sections 112-53AB, 112-97 (at the end of the table), 4.84
112-115 (the cell at item 11 in the table, the column headed `For the
rules about this roll-over' and 112-150 (at the end of the table)
Item 24, section 124-510 of the Income Tax (Transitional 4.79
Provisions) Act 1997
Part 3-80, item 16, sections 620-5 and 620-10 4.56
Part 3-80, item 25, section 620-10 of the Income Tax (Transitional 4.80
Provisions) Act 1997
Part 3-80, item 16, section 620-15 4.57
Part 3-80, item 16, paragraph 620-20(1)(a) and subsection 620-20(2) 4.58
Part 3-80, item 16, paragraph 620-20(1)(b) and subsection 620-20(2) 4.59
Part 3-80, item 16, subsections 620-25(1) and (2) 4.60
Part 3-80, item 16, subsection 620-25(3) 4.61
Part 3-80, item 16, subsection 620-25(4) 4.62
Part 3-80, item 16, subsections 620-30(1) and (2) 4.65
Part 3-80, item 16, subsection 620-30(2) and (note) 4.67
Part 3-80, item 16, subsections 620-30(2) and (3) 4.66
Part 3-80, item 16, subsections 620-40(1) and (2) 4.69
Part 3-80, item 16, subsection 620-40(2) 4.70
Part 3-80, item 16, subsection 620-40(3) 4.71
Part 3-80, item 16, subsection 620-50(1) 4.75
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Bill reference Paragraph number
Part 3-80, item 16, subsection 620-50(2) 4.76
Part 3-80, item 16, subsection 620-50(3) 4.77
Part 3-80, item 16, subsections 620-50(4) and (5) 4.78
Schedule 3: GST financial supply provisions
Bill reference Paragraph number
Item 1, paragraphs 189-5(1)(a) and (2)(a) 5.22
Item 2, paragraphs 189-10(1)(a) and (2)(a) 5.22
Item 3 5.26
Item 4, paragraph 11-15(5)(a) 5.28
Item 5, definition of `deposit account' in section 195-1 5.29, 5.30
Item 6 5.31
Items 7 and 8, sections 29-39 and 29-69 5.41
Item 9, section 156-23 5.37
Item 10, Division 158 5.32
Item 10, paragraph 158-5(2)(b) 5.34
Item 11 5.42
Schedule 4: New residential premises
Bill reference Paragraph number
Item 1, subsection 40-75(1) 6.43
Item 2, subsection 40-75(1) 6.22
Item 3, subsection 40-75(2) 6.44
Item 4, paragraph 40-75(2)(a) 6.45
Item 5, subsection 40-75(2AA) 6.23
Item 6, subsection 40-75(2A) 6.46
Item 7, subsection 40-75(2A) 6.47
Item 8, subsection 40-75(2B) 6.25
Item 8, subsection 40-75(2B)(note 3) and 6.48
subsection 40-75 (2C)(note)
Item 8, subparagraph 40-75(2B)(c)(ii) 6.29
Item 8, subsection 40-75(2C) 6.30
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Index
Bill reference Paragraph number
Item 9, subsection 40-75(3) 6.49
Item 10, definition of `property subdivision plan' in section 195-1 6.23
Item 12, paragraph 12(2)(a) 6.36
Item 12, paragraph 12(2)(b) 6.37
Item 12, paragraph 12(2)(c) 6.38
Item 12, paragraph 12(2)(d) 6.39
Item 13 6.42
Subitems 11(1) and (2) 6.33
Subitem 11(3) 6.34
Subitem 12(1) 6.35
Subitem 12(3) 6.40, 6.41
Schedule 5: Deductible gift recipients
Bill reference Paragraph number
Item 1, item 8.2.12 in the table in section 30-70(2) 7.9
Item 2, item 9.2.24 in the table in subsection 30-80(2) 7.6
Items 3 and 4, items 97AAA and 86AA in the table in 7.10
section 30-315
Schedule 6: Miscellaneous amendments
Bill reference Paragraph number
Items 1 and 2 Table 8.2
Items 3 to 6 Table 8.3
Items 7 to 9 Table 8.4
Item 10 Table 8.5
Items 11 to 20 Table 8.6
Item 21 Table 8.7
Item 22 Table 8.8
Item 23 Table 8.9
Item 24 Table 8.10
Items 25 and 26 Table 8.11
Items 27 and 28 Table 8.12
121
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Bill reference Paragraph number
Item 29 Table 8.12
Items 30 and 31 Table 8.13
Item 32 Table 8.14
Items 33 and 34 Table 8.15
Items 35 to 59 Table 8.16
Items 60 to 67 Table 8.17
Items 68 to 93 Table 8.18
Items 94 to 96 Table 8.19
Items 97 to 105 Table 8.20
Items 106 to 109 Table 8.21
Items 110 and 111 and 113 to 115, subsection 152-70(1) 8.19
(paragraph (a) in the cell in item 3 in the table, column headed `Is:'),
subsection 152-70(1) (paragraph (b) in the cell in item 3 in the table,
column headed `Is:'), paragraph 152-105(c)(note),
paragraph 152-110(1)(c)(note) and section 152-120
Item 112, subsections 152-70(4) and (6) 8.14
Item 112, subsection 152-70(5) 8.15
Item 112, paragraph 152-70(6)(a) 8.16
Item 112, paragraph 152-70(6)(b) 8.16
Items 117 to 131 Table 8.22
Items 132 to 142 Table 8.23
Item 143 Table 8.24
Items 144 and 145 Table 8.25
Items 146 to 148 Table 8.25
Items 149 to 152 Table 8.26
Items 153 to 156 Table 8.27
Items 157 and 158 Table 8.28
Item 159 Table 8.29
Items 160 and 161 Table 8.30
Items 162 and 163 Table 8.31
Items 164 to 176 Table 8.32
Items 177 and 178 Table 8.33
Items 179 to 182 Table 8.34
Item 183 Table 8.35
Item 184 Table 8.36
Item 185 Table 8.37
Items 186 and 187 Table 8.38
122
Index
Bill reference Paragraph number
Items 188 and 189 Table 8.39
Item 190 Table 8.40
Items 191 and 192 Table 8.41
Items 193 to 199 Table 8.42
Items 200 to 203 Table 8.43
Items 204 to 211 Table 8.43
Items 212 and 213 Table 8.43
Items 214 to 216 Table 8.44
Item 217 Table 8.45
Item 218 Table 8.46
Items 219 to 248 Table 8.47
Items 249 to 251 Table 8.48
Items 252 and 253 Table 8.49
Items 254 and 255 Table 8.50
Subitem 4(1) and item 188 Table 8.19
Subitem 4(2) and item 188 Table 8.21
Subitem 4(3), item 188 8.21
Subitem 116(1) 8.20
123
125